Law On Insurance Cases Construction of Insurance Contracts

Law on Insurance: Cases on Construction of Insurance Contracts
Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-21574 June 30, 1966
SIMON DE LA CRUZ, plaintiff and appellee,

vs.
THE CAPITAL INSURANCE and SURETY CO., INC., defendant and appellant.
Achacoso, Nera and Ocampo for defendant and appellant.

Agustin M. Gramata for plaintiff and appellee.
BARRERA, J.:
This is an appeal by the Capital Insurance & Surety Company, Inc., from the decision of the Court of First
Instance of Pangasinan (in Civ Case No. U-265), ordering it to indemnify therein plaintiff Simon de la Cruz for
the death of the latter's son, to pay the burial expenses, and attorney's fees.
Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines, Inc. in Baguio, was the holder of an
accident insurance policy (No. ITO-BFE-170) underwritten by the Capital Insurance & Surety Co., Inc., for the
period beginning November 13, 1956 to November 12, 1957. On January 1, 1957, in connection with the
celebration of the New Year, the Itogon-Suyoc Mines, Inc. sponsored a boxing contest for general entertainment
wherein the insured Eduardo de la Cruz, a non-professional boxer participated. In the course of his bout with
another person, likewise a non-professional, of the same height, weight, and size, Eduardo slipped and was hit
by his opponent on the left part of the back of the head, causing Eduardo to fall, with his head hitting the rope of
the ring. He was brought to the Baguio General Hospital the following day. The cause of death was reported as
hemorrhage, intracranial, left.
Simon de la Cruz, the father of the insured and who was named beneficiary under the policy, thereupon filed a
claim with the insurance company for payment of the indemnity under the insurance policy. As the claim was
denied, De la Cruz instituted the action in the Court of First Instance of Pangasinan for specific performance.
Defendant insurer set up the defense that the death of the insured, caused by his participation in a boxing
contest, was not accidental and, therefore, not covered by insurance. After due hearing the court rendered the
decision in favor of the plaintiff which is the subject of the present appeal.
It is not disputed that during the ring fight with another non-professional boxer, Eduardo slipped, which was
unintentional. At this opportunity, his opponent landed on Eduardo's head a blow, which sent the latter to the
ropes. That must have caused the cranial injury that led to his death. Eduardo was insured "against death or
disability caused by accidental means". Appellant insurer now contends that while the death of the insured was
due to head injury, said injury was sustained because of his voluntary participation in the contest. It is claimed
that the participation in the boxing contest was the "means" that produced the injury which, in turn, caused the
death of the insured. And, since his inclusion in the boxing card was voluntary on the part of the insured, he
cannot be considered to have met his death by "accidental means". 1äw phï1.ñët
The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical
meaning, and are construed by the courts in their ordinary and common acceptation. Thus, the terms have been
taken to mean that which happen by chance or fortuitously, without intention and design, and which is
unexpected, unusual, and unforeseen. An accident is an event that takes place without one's foresight or
Page 1 of 43
expectation — an event that proceeds from an unknown cause, or is an unusual effect of a known cause and,
therefore, not expected.1
Appellant however, would like to make a distinction between "accident or accidental" and "accidental means",
which is the term used in the insurance policy involved here. It is argued that to be considered within the
protection of the policy, what is required to be accidental is the means that caused or brought the death and not
the death itself. It may be mentioned in this connection, that the tendency of court decisions in the United States
in recent years is to eliminate the fine distinction between the terms "accidental" and "accidental means" and to
consider them as legally synonymous.2 But, even if we take appellant's theory, the death of the insured in the
case at bar would still be entitled to indemnification under the policy. The generally accepted rule is that, death
or injury does not result from accident or accidental means within the terms of an
accident-policy if it is the natural result of the insured's voluntary act, unaccompanied by anything unforeseen
except the death or injury.3 There is no accident when a deliberate act is performed unless some additional,
unexpected, independent, and unforeseen happening occurs which produces or brings about the result of injury
or death.4 In other words, where the death or injury is not the natural or probable result of the insured's voluntary
act, or if something unforeseen occurs in the doing of the act which produces the injury, the resulting death is
within the protection of policies insuring against death or injury from accident.
In the present case, while the participation of the insured in the boxing contest is voluntary, the injury was
sustained when he slid, giving occasion to the infliction by his opponent of the blow that threw him to the ropes
of the ring. Without this unfortunate incident, that is, the unintentional slipping of the deceased, perhaps he could
not have received that blow in the head and would not have died. The fact that boxing is attended with some
risks of external injuries does not make any injuries received in the course of the game not accidental. In boxing
as in other equally physically rigorous sports, such as basketball or baseball, death is not ordinarily anticipated
to result. If, therefore, it ever does, the injury or death can only be accidental or produced by some unforeseen
happening or event as what occurred in this case.
Furthermore, the policy involved herein specifically excluded from its coverage —
(e) Death or disablement consequent upon the Insured engaging in football, hunting, pigsticking,
steeplechasing, polo-playing, racing of any kind, mountaineering, or motorcycling.
Death or disablement resulting from engagement in boxing contests was not declared outside of the protection
of the insurance contract. Failure of the defendant insurance company to include death resulting from a boxing
match or other sports among the prohibitive risks leads inevitably to the conclusion that it did not intend to limit
or exempt itself from liability for such death.5
Wherefore, in view of the foregoing considerations, the decision appealed from is hereby affirmed, with costs
against appellant. so ordered.
Page 2 of 43

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 92383 July 17, 1992
SUN INSURANCE OFFICE, LTD., petitioner,

vs.
THE HON. COURT OF APPEALS and NERISSA LIM, respondents.
CRUZ, J.:
The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value of P200,000.00.
Two months later, he was dead with a bullet wound in his head. As beneficiary, his wife Nerissa Lim sought
payment on the policy but her claim was rejected. The petitioner agreed that there was no suicide. It argued,
however that there was no accident either.
Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on October 6, 1982, at about
10 o'clock in the evening, after his mother's birthday party. According to Nalagon, Lim was in a happy mood (but
not drunk) and was playing with his handgun, from which he had previously removed the magazine. As she
watched television, he stood in front of her and pointed the gun at her. She pushed it aside and said it might he
loaded. He assured her it was not and then pointed it to his temple. The next moment there was an explosion
and Lim slumped to the floor. He was dead before he fell. 1
The widow sued the petitioner in the Regional Trial Court of Zamboanga City and was sustained. 2 The petitioner
was sentenced to pay her P200,000.00, representing the face value of the policy, with interest at the legal rate;
P10,000.00 as moral damages; P5,000.00 as exemplary damages; P5,000.00 as actual and compensatory damages;
and P5,000.00 as attorney's fees, plus the costs of the suit. This decision was affirmed on appeal, and the motion for
reconsideration was denied. 3 The petitioner then came to this Court to fault the Court of Appeals for approving the
payment of the claim and the award of damages.
The term "accident" has been defined as follows:
The words "accident" and "accidental" have never acquired any technical signification in law, and when used in
an insurance contract are to be construed and considered according to the ordinary understanding and common
usage and speech of people generally. In-substance, the courts are practically agreed that the words "accident"
and "accidental" mean that which happens by chance or fortuitously, without intention or design, and which is
unexpected, unusual, and unforeseen. The definition that has usually been adopted by the courts is that an
accident is an event that takes place without one's foresight or expectation — an event that proceeds from an
unknown cause, or is an unusual effect of a known case, and therefore not expected. 4
An accident is an event which happens without any human agency or, if happening through human agency, an
event which, under the circumstances, is unusual to and not expected by the person to whom it happens. It has
also been defined as an injury which happens by reason of some violence or casualty to the injured without his
design, consent, or voluntary co-operation. 5
Page 3 of 43
In light of these definitions, the Court is convinced that the incident that resulted in Lim's death was indeed an
accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, 6 says that "there is no accident
when a deliberate act is performed unless some additional, unexpected, independent and unforeseen happening
occurs which produces or brings about their injury or death." There was such a happening. This was the firing of the
gun, which was the additional unexpected and independent and unforeseen occurrence that led to the insured
person's death.
The petitioner also cites one of the four exceptions provided for in the insurance contract and contends that the
private petitioner's claim is barred by such provision. It is there stated:
Exceptions —
The company shall not be liable in respect of
1. Bodily injury
xxx xxx xxx
b. consequent upon
i) The insured person attempting to commit suicide or willfully exposing himself to needless peril
except in an attempt to save human life.
To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner contends that the
insured willfully exposed himself to needless peril and thus removed himself from the coverage of the insurance
policy.
It should be noted at the outset that suicide and willful exposure to needless peril are in pari materia because
they both signify a disregard for one's life. The only difference is in degree, as suicide imports a positive act of
ending such life whereas the second act indicates a reckless risking of it that is almost suicidal in intent. To
illustrate, a person who walks a tightrope one thousand meters above the ground and without any safety device
may not actually be intending to commit suicide, but his act is nonetheless suicidal. He would thus be
considered as "willfully exposing himself to needless peril" within the meaning of the exception in question.
The petitioner maintains that by the mere act of pointing the gun to hip temple, Lim had willfully exposed himself
to needless peril and so came under the exception. The theory is that a gun is per se dangerous and should
therefore be handled cautiously in every case.
That posture is arguable. But what is not is that, as the secretary testified, Lim had removed the magazine from
the gun and believed it was no longer dangerous. He expressly assured her that the gun was not loaded. It is
submitted that Lim did not willfully expose himself to needless peril when he pointed the gun to his temple
because the fact is that he thought it was not unsafe to do so. The act was precisely intended to assure Nalagon
that the gun was indeed harmless.
The contrary view is expressed by the petitioner thus:
Accident insurance policies were never intended to reward the insured for his tendency to show
off or for his miscalculations. They were intended to provide for contingencies. Hence, when I
miscalculate and jump from the Quezon Bridge into the Pasig River in the belief that I can
overcome the current, I have wilfully exposed myself to peril and must accept the consequences
of my act. If I drown I cannot go to the insurance company to ask them to compensate me for my
Page 4 of 43
failure to swim as well as I thought I could. The insured in the case at bar deliberately put the
gun to his head and pulled the trigger. He wilfully exposed himself to peril.
The Court certainly agrees that a drowned man cannot go to the insurance company to ask for compensation.
That might frighten the insurance people to death. We also agree that under the circumstances narrated, his
beneficiary would not be able to collect on the insurance policy for it is clear that when he braved the currents
below, he deliberately exposed himself to a known peril.
The private respondent maintains that Lim did not. That is where she says the analogy fails. The petitioner's
hypothetical swimmer knew when he dived off the Quezon Bridge that the currents below were dangerous. By
contrast, Lim did not know that the gun he put to his head was loaded.
Lim was unquestionably negligent and that negligence cost him his own life. But it should not prevent his widow
from recovering from the insurance policy he obtained precisely against accident. There is nothing in the policy
that relieves the insurer of the responsibility to pay the indemnity agreed upon if the insured is shown to have
contributed to his own accident. Indeed, most accidents are caused by negligence. There are only four
exceptions expressly made in the contract to relieve the insurer from liability, and none of these exceptions is
applicable in the case at bar. **
It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of the assured.
There is no reason to deviate from this rule, especially in view of the circumstances of this case as above
analyzed.
On the second assigned error, however, the Court must rule in favor of the petitioner. The basic issue raised in
this case is, as the petitioner correctly observed, one of first impression. It is evident that the petitioner was
acting in good faith then it resisted the private respondent's claim on the ground that the death of the insured
was covered by the exception. The issue was indeed debatable and was clearly not raised only for the purpose
of evading a legitimate obligation. We hold therefore that the award of moral and exemplary damages and of
attorney's fees is unjust and so must be disapproved.
In order that a person may be made liable to the payment of moral damages, the law requires
that his act be wrongful. The adverse result of an action does not per se make the act wrongful
and subject the act or to the payment of moral damages. The law could not have meant to
impose a penalty on the right to litigate; such right is so precious that moral damages may not be
charged on those who may exercise it erroneously. For these the law taxes costs. 7
The fact that the results of the trial were adverse to Barreto did not alone make his act in bringing the
action wrongful because in most cases one party will lose; we would be imposing an unjust condition
or limitation on the right to litigate. We hold that the award of moral damages in the case at bar is not
justified by the facts had circumstances as well as the law.
If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses, since it is
not the fact of winning alone that entitles him to recover such damages of the exceptional
circumstances enumerated in Art. 2208. Otherwise, every time a defendant wins, automatically
the plaintiff must pay attorney's fees thereby putting a premium on the right to litigate which
should not be so. For those expenses, the law deems the award of costs as sufficient. 8
WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED in so far as it holds the petitioner
liable to the private respondent in the sum of P200,000.00 representing the face value of the insurance contract,
with interest at the legal rate from the date of the filing of the complaint until the full amount is paid, but
MODIFIED with the deletion of all awards for damages, including attorney's fees, except the costs of the suit.
SO ORDERED.
Page 5 of 43

SUPREME COURT
Manila
EN BANC
G.R. No. L-21821-22 and L-21824-27 May 31, 1966
DIOSDADO C. TY, plaintiff-appellant,

vs.
FILIPINAS COMPAÑIA DE SEGUROS, et al., defendants-appellees.
Porfirio V. Villaroman for plaintiff-appellant.

Ramirez and Ortigas for defendants-appellees Filipinas Compañia de Seguros, Philippine Guaranty Co., Inc.
and Universal Insurance and Indemnity Co.
Renato L. Liboro for defendant-appellee People's Surety and Insurance Co., Inc.
Perfecto P. R. Chua Cheng for defendant-appellee South Sea Surety and Insurance Co., Inc.
Gil Carlos and Associates for defendant-appellee Plaridel Surety and Insurance Co., Inc.
BARRERA, J.:
These are appeals instituted by Diosdado C. Ty from a single decision of the Court of First Instance of Manila (in
Civ. Cases Nos. 26343, 26344, 26404, 26405, 26406, 26442, which were tried together), dismissing the six
separate complaints he filed against six insurance companies (Filipinas Compañia de Seguros, People's Surety
& Insurance Co., Inc., South Sea Surety & Insurance Co., Inc., The Philippine Guaranty Company, Inc.,
Universal Insurance & Indemnity Co., and Plaridel Surety & Insurance Co., Inc.) for collection from each of them,
of the sum of P650.00, as compensation for the disability of his left hand.
The facts of these cases are not controverted:
Plaintiff-appellant was an employee of Broadway Cotton Factory at Grace Park, Caloocan City, working as
mechanic operator, with monthly salary of P185.00. In the latter part of 1953, he took Personal Accident Policies
from several insurance companies, among which are herein defendants-appellees, on different dates,1 effective
for 12 months. During the effectivity of these policies, or on December 24, 1953, a fire broke out in the factory
where plaintiff was working. As he was trying to put out said fire with the help of a fire extinguisher, a heavy
object fell upon his left hand. Plaintiff received treatment at the National Orthopedic Hospital from December 26,
1953 to February 8, 1954, for the following injuries, to wit:
(1) Fracture, simple, oraximal phalanx, index finger, left;
(2) Fracture, compound, communite proximal phalanx, middle finger, left and 2nd phalanx simple;
(3) Fracture, compound, communite phalanx, 4th finger, left;
(4) Fracture, simple, middle phalanx, middle finger, left;
(5) Lacerated wound, sutured, volar aspect, small finger, left;
(6) Fracture, simple, chip, head, 1st phalanx 5th digit, left.
which injuries, the attending surgeon certified, would cause temporary total disability of appellant's left hand.
Page 6 of 43
As the insurance companies refused to pay his claim for compensation under the policies by reason of the said
disability of his left hand, Ty filed motions in the Municipal Court of Manila, which rendered favorable decision.
On appeal to the Court of First Instance by the insurance companies, the cases were dismissed on the ground
that under the uniform terms of the insurance policies, partial disability of the insured caused by loss of either
hand to be compensable, the loss must result in the amputation of that hand. Hence, these appeals by the
insured.1äwphï1.ñët
Plaintiff-appellant is basing his claim for indemnity under the provision of the insurance contract, uniform in all
the cases, which reads:
"INDEMNITY FOR TOTAL OR PARTIAL DISABILITY
If the Insured sustains any Bodily Injury which is effected solely through violent, external, visible and
accidental means, and which shall not prove fatal but shall result, independently of all other causes and
within sixty (60) days from the occurrence, thereof, in Total or Partial Disability of the Insured, the
Company shall pay, subject to the exceptions as provided for hereinafter, the amount set opposite such
injury.
xxx xxx xxx
PARTIAL DISABILITY
LOSS OF:
xxx xxx xxx
Either Hand P650.00
xxx xxx xxx
The loss of a hand shall mean the loss, by amputation through the bones of the wrist.
Appellant contends that to be entitled to indemnification under the foregoing provision, it is enough that the
insured is disabled to such an extent that he cannot substantially perform all acts or duties of the kind necessary
in the prosecution of his business. It is argued that what is compensable is the disability and not the amputation
of the hand. The definition of what constitutes loss of hand, placed in the contract, according to appellant,
consequently, makes the provision ambiguous and calls for the interpretation thereof by this Court.
This is not the first time that the proper construction of this provision, which is uniformly carried in personal
accident policies, has been questioned. Herein appellant himself has already brought this matter to the attention
of this Court in connection with the other accident policies which he took and under which he had tried to collect
indemnity, for the identical injury that is the basis of the claims in these cases. And, we had already ruled:
While we sympathize with the plaintiff or his employer, for whose benefit the policies were issued, we
can not go beyond the clear and express conditions of the insurance policies, all of which definite partial
disability as loss of either hand by amputation through the bones of the wrist. There was no such
amputation in the case at bar. All that was found by the trial court, which is not disputed on appeal, was
that the physical injuries "caused temporary total disability of plaintiff's left hand." Note that the disability
of plaintiff's hand was merely temporary, having been caused by fractures of the index, the middle and
the fourth fingers of the left hand.
Page 7 of 43
We might add that the agreement contained in the insurance policies is the law between the parties. As the
terms of the policies are clear, express and specific that only amputation of the left hand should be considered
as a loss thereof, an interpretation that would include the mere fracture or other temporary disability not covered
by the policies would certainly be unwarranted.2
We find no reason to depart from the foregoing ruling on the matter.

Plaintiff-appellant cannot come to the courts and claim that he was misled by the terms of the contract. The
provision is clear enough to inform the party entering into that contract that the loss to be considered a disability
entitled to indemnity, must be severance or amputation of that affected member from the body of the insured.
Wherefore, finding no error in the decision appealed from, the same is hereby affirmed, without costs. So
ordered.
Page 8 of 43

SUPREME COURT
Manila
EN BANC
G.R. No. L-8151 December 16, 1955
VIRGINIA CALANOC, petitioner,

vs.
COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE CO., respondents.
Lucio Javillonar for petitioner.

J. A. Wolfson, Manuel Y. Mecias, Emilio Abello and Anselmo A. Reyes for respondents.
BAUTISTA ANGELO, J.:
This suit involves the collection of P2,000 representing the value of a supplemental policy covering accidental
death which was secured by one Melencio Basilio from the Philippine American Life Insurance Company. The
case originated in the Municipal Court of Manila and judgment being favorable to the plaintiff it was appealed to
the court of first instance. The latter court affirmed the judgment but on appeal to the Court of Appeals the
judgment was reversed and the case is now before us on a petition for review.
Melencio Basilio was a watchman of the Manila Auto Supply located at the corner of Avenida Rizal and
Zurbaran. He secured a life insurance policy from the Philippine American Life Insurance Company in the
amount of P2,000 to which was attached a supplementary contract covering death by accident. On January 25,
1951, he died of a gunshot wound on the occasion of a robbery committed in the house of Atty. Ojeda at the
corner of Oroquieta and Zurbaan streets. Virginia Calanoc, the widow, was paid the sum of P2,000, face value
of the policy, but when she demanded the payment of the additional sum of P2,000 representing the value of the
supplemental policy, the company refused alleging, as main defense, that the deceased died because he was
murdered by a person who took part in the commission of the robbery and while making an arrest as an officer
of the law which contingencies were expressly excluded in the contract and have the effect of exempting the
company from liability.
The pertinent facts which need to be considered for the determination of the questions raised are those
reproduced in the decision of the Court of Appeals as follows:
The circumstances surrounding the death of Melencio Basilio show that when he was killed at about
seven o'clock in the night of January 25, 1951, he was on duty as watchman of the Manila Auto Supply
at the corner of Avenida Rizal and Zurbaran; that it turned out that Atty. Antonio Ojeda who had his
residence at the corner of Zurbaran and Oroquieta, a block away from Basilio's station, had come home
that night and found that his house was well-lighted, but with the windows closed; that getting suspicious
that there were culprits in his house, Atty. Ojeda retreated to look for a policeman and finding Basilio in
khaki uniform, asked him to accompany him to the house with the latter refusing on the ground that he
was not a policeman, but suggesting that Atty. Ojeda should ask the traffic policeman on duty at the
corner of Rizal Avenue and Zurbaran; that Atty. Ojeda went to the traffic policeman at said corner and
reported the matter, asking the policeman to come along with him, to which the policeman agreed; that
on the way to the Ojeda residence, the policeman and Atty. Ojeda passed by Basilio and somehow or
other invited the latter to come along; that as the tree approached the Ojeda residence and stood in front
of the main gate which was covered with galvanized iron, the fence itself being partly concrete and partly
Page 9 of 43
adobe stone, a shot was fired; that immediately after the shot, Atty. Ojeda and the policeman sought
cover; that the policeman, at the request of Atty. Ojeda, left the premises to look for reinforcement; that it
turned out afterwards that the special watchman Melencio Basilio was hit in the abdomen, the wound
causing his instantaneous death; that the shot must have come from inside the yard of Atty. Ojeda, the
bullet passing through a hole waist-high in the galvanized iron gate; that upon inquiry Atty. Ojeda found
out that the savings of his children in the amount of P30 in coins kept in his aparador contained in
stockings were taken away, the aparador having been ransacked; that a month thereafter the
corresponding investigation conducted by the police authorities led to the arrest and prosecution of four
persons in Criminal Case No. 15104 of the Court of First Instance of Manila for 'Robbery in an Inhabited
House and in Band with Murder'.
It is contended in behalf of the company that Basilio was killed which "making an arrest as an officer of the law"
or as a result of an "assault or murder" committed in the place and therefore his death was caused by one of the
risks excluded by the supplementary contract which exempts the company from liability. This contention was
upheld by the Court of Appeals and, in reaching this conclusion, made the following comment:
From the foregoing testimonies, we find that the deceased was a watchman of the Manila Auto Supply,
and, as such, he was not boud to leave his place and go with Atty. Ojeda and Policeman Magsanoc to
see the trouble, or robbery, that occurred in the house of Atty. Ojeda. In fact, according to the finding of
the lower court, Atty. Ojeda finding Basilio in uniform asked him to accompany him to his house, but the
latter refused on the ground that he was not a policeman and suggested to Atty. Ojeda to ask help from
the traffic policeman on duty at the corner of Rizal Avenue and Zurbaran, but after Atty. Ojeda secured
the help of the traffic policeman, the deceased went with Ojeda and said traffic policeman to the
residence of Ojeda, and while the deceased was standing in front of the main gate of said residence, he
was shot and thus died. The death, therefore, of Basilio, although unexpected, was not caused by an
accident, being a voluntary and intentional act on the part of the one wh robbed, or one of those who
robbed, the house of Atty. Ojeda. Hence, it is out considered opinion that the death of Basilio, though
unexpected, cannot be considered accidental, for his death occurred because he left his post and joined
policeman Magsanoc and Atty. Ojeda to repair to the latter's residence to see what happened thereat.
Certainly, when Basilio joined Patrolman Magsanoc and Atty. Ojeda, he should have realized the danger
to which he was exposing himself, yet, instead of remaining in his place, he went with Atty. Ojeda and
Patrolman Magsanoc to see what was the trouble in Atty. Ojeda's house and thus he was fatally shot.
We dissent from the above findings of the Court of Appeals. For one thing, Basilio was a watchman of the
Manila Auto Supply which was a block away from the house of Atty. Ojeda where something suspicious was
happening which caused the latter to ask for help. While at first he declied the invitation of Atty. Ojeda to go with
him to his residence to inquire into what was going on because he was not a regular policeman, he later agreed
to come along when prompted by the traffic policeman, and upon approaching the gate of the residence he was
shot and died. The circumstance that he was a mere watchman and had no duty to heed the call of Atty. Ojeda
should not be taken as a capricious desire on his part to expose his life to danger considering the fact that the
place he was in duty-bound to guard was only a block away. In volunteering to extend help under the situation,
he might have thought, rightly or wrongly, that to know the truth was in the interest of his employer it being a
matter that affects the security of the neighborhood. No doubt there was some risk coming to him in pursuing
that errand, but that risk always existed it being inherent in the position he was holding. He cannot therefore be
blamed solely for doing what he believed was in keeping with his duty as a watchman and as a citizen. And he
cannot be considered as making an arrest as an officer of the law, as contended, simply because he went with
the traffic policeman, for certainly he did not go there for that purpose nor was he asked to do so by the
policeman.
Much less can it be pretended that Basilio died in the course of an assault or murder considering the very nature
of these crimes. In the first place, there is no proof that the death of Basilio is the result of either crime for the
record is barren of any circumstance showing how the fatal shot was fired. Perhaps this may be clarified in the
criminal case now pending in court as regards the incident but before that is done anything that might be said on
Page 10 of 43
the point would be a mere conjecture. Nor can it be said that the killing was intentional for there is the possibility
that the malefactor had fired the shot merely to scare away the people around for his own protection and not
necessarily to kill or hit the victim. In any event, while the act may not excempt the triggerman from liability for
the damage done, the fact remains that the happening was a pure accident on the part of the victim. The victim
could have been either the policeman or Atty. Ojeda for it cannot be pretended that the malefactor aimed at the
deceased precisely because he wanted to take his life.
We take note that these defenses are included among the risks exluded in the supplementary contract which
enumerates the cases which may exempt the company from liability. While as a general rule "the parties may
limit the coverage of the policy to certain particular accidents and risks or causes of loss, and may expressly
except other risks or causes of loss therefrom" (45 C. J. S. 781-782), however, it is to be desired that the terms
and phraseology of the exception clause be clearly expressed so as to be within the easy grasp and
understanding of the insured, for if the terms are doubtful or obscure the same must of necessity be interpreted
or resolved aganst the one who has caused the obscurity. (Article 1377, new Civil Code) And so it has bene
generally held that the "terms in an insurance policy, which are ambiguous, equivacal, or uncertain . . . are to be
construed strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the
dominant purpose of indemnity or payment to the insured, especially where a forfeiture is involved" (29 Am. Jur.,
181), and the reason for this rule is that he "insured usually has no voice in the selection or arrangement of the
words employed and that the language of the contract is selected with great care and deliberation by experts
and legal advisers employed by, and acting exclusively in the interest of, the insurance company." (44 C. J. S.,
p. 1174.)
Insurance is, in its nature, complex and difficult for the layman to understand. Policies are prepared by
experts who know and can anticipate the bearings and possible complications of every contingency. So
long as insurance companies insist upon the use of ambiguous, intricate and technical provisions, which
conceal rather than frankly disclose, their own intentions, the courts must, in fairness to those who
purchase insurance, construe every ambiguity in favor of the insured. (Algoe vs. Pacific Mut. L. Ins. Co.,
91 Wash. 324, LRA 1917A, 1237.)lawphi1.net
An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat the very
purpose for which the policy was procured. (Moore vs. Aetna Life Insurance Co., LRA 1915D, 264.)
We are therefore persuaded to conclude that the circumstances unfolded in the present case do not warrant the
finding that the death of the unfortunate victim comes within the purview of the exception clause of the
supplementary policy and, hence, do not exempt the company from liability.
Wherefore, reversing the decision appealed from, we hereby order the company to pay petitioner-appellant the
amount of P2,000, with legal interest from January 26, 1951 until fully paid, with costs.
Page 11 of 43

SUPREME COURT
Manila
EN BANC
G.R. No. L-25579 March 29, 1972
EMILIA T. BIAGTAN, JUAN T. BIAGTAN, JR., MIGUEL T. BIAGTAN, GIL T. BIAGTAN and GRACIA T.
BIAGTAN, plaintiffs-appellees,
vs.
THE INSULAR LIFE ASSURANCE COMPANY, LTD., defendant-appellant.
Tanopo, Millora, Serafica, and Sañez for plaintiff-appellees.
Araneta, Mendoza and Papa for defendant-appellant.
MAKALINTAL, J.:p
This is an appeal from the decision of the Court of First Instance of Pangasinan in its Civil Case No. D-1700.
The facts are stipulated. Juan S. Biagtan was insured with defendant InsularLife Assurance Company under
Policy No. 398075 for the sum of P5,000.00 and, under a supplementary contract denominated "Accidental
Death Benefit Clause, for an additional sum of P5,000.00 if "the death of the Insured resulted directly from bodily
injury effected solely through external and violent means sustained in an accident ... and independently of all
other causes." The clause, however,expressly provided that it would not apply where death resulted from an
injury"intentionally inflicted by another party."
On the night of May 20, 1964, or during the first hours of the following day a band of robbers entered the house
of the insured Juan S. Biagtan. What happened then is related in the decision of the trial court as follows:
...; that on the night of May 20, 1964 or the first hours of May 21, 1964, while the said life policy
and supplementary contract were in full force and effect, the house of insured Juan S. Biagtan
was robbed by a band of robbers who were charged in and convicted by the Court of First
Instance of Pangasinan for robbery with homicide; that in committing the robbery, the robbers,
on reaching the staircase landing on the second floor, rushed towards the door of the second
floor room, where they suddenly met a person near the door of oneof the rooms who turned out
to be the insured Juan S. Biagtan who received thrusts from their sharp-pointed instruments,
causing wounds on the body of said Juan S. Biagtan resulting in his death at about 7 a.m. on the
same day, May 21, 1964;
Plaintiffs, as beneficiaries of the insured, filed a claim under the policy. The insurance company paid the basic
amount of P5,000.00 but refused to pay the additional sum of P5,000.00 under the accidental death benefit
clause, on the ground that the insured's death resulted from injuries intentionally inflicted by third parties and
therefore was not covered. Plaintiffs filed suit to recover, and after due hearing the court a quo rendered
judgment in their favor. Hence the present appeal by the insurer.
Page 12 of 43
The only issue here is whether under the facts are stipulated and found by the trial court the wounds received by
the insured at the hands of the robbers — nine in all, five of them mortal and four non-mortal — were inflicted
intentionally. The court, in ruling negatively on the issue, stated that since the parties presented no evidence and
submitted the case upon stipulation, there was no "proof that the act of receiving thrust (sic) from the sharp-
pointed instrument of the robbers was intended to inflict injuries upon the person of the insured or any other
person or merely to scare away any person so as to ward off any resistance or obstacle that might be offered in
the pursuit of their main objective which was robbery."
The trial court committed a plain error in drawing the conclusion it did from the admitted facts. Nine wounds
were inflicted upon the deceased, all by means of thrusts with sharp-pointed instruments wielded by the robbers.
This is a physical fact as to which there is no dispute. So is the fact that five of those wounds caused the death
of the insured. Whether the robbers had the intent to kill or merely to scare the victim or to ward off any defense
he might offer, it cannot be denied that the act itself of inflicting the injuries was intentional. It should be noted
that the exception in the accidental benefit clause invoked by the appellant does not speak of the purpose —
whether homicidal or not — of a third party in causing the injuries, but only of the fact that such injuries have
been "intentionally" inflicted — this obviously to distinguish them from injuries which, although received at the
hands of a third party, are purely accidental. This construction is the basic idea expressed in the coverage of the
clause itself, namely, that "the death of the insured resulted directly from bodily injury effected solely through
external and violent means sustained in an accident ... and independently of all other causes." A gun which
discharges while being cleaned and kills a bystander; a hunter who shoots at his prey and hits a person instead;
an athlete in a competitive game involving physical effort who collides with an opponent and fatally injures him
as a result: these are instances where the infliction of the injury is unintentional and therefore would be within
the coverage of an accidental death benefit clause such as thatin question in this case. But where a gang of
robbers enter a house and coming face to face with the owner, even if unexpectedly, stab him repeatedly, it is
contrary to all reason and logic to say that his injuries are not intentionally inflicted, regardless of whether they
prove fatal or not. As it was, in the present case they did prove fatal, and the robbers have been accused and
convicted of the crime of robbery with homicide.
The case of Calanoc vs. Court of Appeals, 98 Phil. 79, is relied upon by the trial court in support of its decision.
The facts in that case, however, are different from those obtaining here. The insured there was a watchman in a
certain company, who happened to be invited by a policeman to come along as the latter was on his way to
investigate a reported robbery going on in a private house. As the two of them, together with the owner of the
house, approached and stood in front of the main gate, a shot was fired and it turned out afterwards that the
watchman was hit in the abdomen, the wound causing his death. Under those circumstances this Court held that
it could not be said that the killing was intentional for there was the possibility that the malefactor had fired the
shot to scare people around for his own protection and not necessarrily to kill or hit the victim. A similar
possibility is clearly ruled out by the facts in the case now before Us. For while a single shot fired from a
distance, and by a person who was not even seen aiming at the victim, could indeed have been fired without
intent to kill or injure, nine wounds inflicted with bladed weapons at close range cannot conceivably be
considered as innocent insofar as such intent is concerned. The manner of execution of the crime permits no
other conclusion.
Court decisions in the American jurisdiction, where similar provisions in accidental death benefit clauses in
insurance policies have been construed, may shed light on the issue before Us. Thus, it has been held that
"intentional" as used in an accident policy excepting intentional injuries inflicted by the insured or any other
person, etc., implies the exercise of the reasoning faculties, consciousness and volition. 1 Where a provision of
the policy excludes intentional injury, it is the intention of the person inflicting the injury that is controlling. 2 If the
injuries suffered by the insured clearly resulted from the intentional act of a third person the insurer is relieved from
liability as stipulated. 3
In the case of Hutchcraft's Ex'r v. Travelers' Ins. Co., 87 Ky. 300, 8 S.W. 570, 12 Am. St. Rep. 484, the insured
was waylaid and assassinated for the purpose of robbery. Two (2) defenses were interposed to the action to
recover indemnity, namely: (1) that the insured having been killed by intentional means, his death was not
Page 13 of 43
accidental, and (2) that the proviso in the policy expressly exempted the insurer from liability in case the insured
died from injuries intentionally inflicted by another person. In rendering judgment for the insurance company the
Court held that while the assassination of the insured was as to him an unforeseen event and therefore
accidental, "the clause of the proviso that excludes the (insurer's) liability, in case death or injury is intentionally
inflicted by another person, applies to this case."
In Butero v. Travelers' Acc. Ins. Co., 96 Wis. 536, 65 Am. St. Rep. 61, 71 S.W. 811, the insured was shot three
times by a person unknown late on a dark and stormy night, while working in the coal shed of a railroad
company. The policy did not cover death resulting from "intentional injuries inflicted by the insured or any other
person." The inquiry was as to the question whether the shooting that caused the insured's death was accidental
or intentional; and the Court found that under the facts, showing that the murderer knew his victim and that he
fired with intent to kill, there could be no recovery under the policy which excepted death from intentional injuries
inflicted by any person.
WHEREFORE, the decision appealed from is reversed and the complaint dismissed, without pronouncement as
to costs.
Zaldivar, Castro, Fernando and Villamor, JJ., concur.
Makasiar, J., reserves his vote.
Separate Opinions
BARREDO, J., concurring —
During the deliberations in this case, I entertained some doubts as to the correctness and validity of the view
upheld in the main opinion penned by Justice Makalintal. Further reflection has convinced me, however, that
there are good reasons to support it.
At first blush, one would feel that every death not suicidal should be considered accidental, for the purposes of
an accident insurance policy or a life insurance policy with a double indemnity clause in case death results from
accident. Indeed, it is quite logical to think that any event whether caused by fault, negligence, intent of a third
party or any unavoidable circumstance, normally unforeseen by the insured and free from any possible
connivance on his part, is an accident in the generally accepted sense of the term. And if I were convinced that
in including in the policy the provision in question, both the insurer and the insured had in mind to exclude
thereby from the coverage of the policy only suicide whether unhelped or helped somehow by a third party, I
would disregard the American decisions cited and quoted in the main opinion as not even persuasive
authorities. But examining the unequivocal language of the provision in controversy and considering that the
insured accepted the policy without asking that it be made clear that the phrase "injury intentionally inflicted by a
third party" should be understood to refer only to injuries inflicted by a third party without any wilful intervention
on his part (of the insured) or, in other words, without any connivance with him (the insured) in order to augment
the proceeds of the policy for his benificiaries, I am inclined to agree that death caused by criminal assault is not
covered by the policies of the kind here in question, specially if the assault, as a matter of fact, could have been
Page 14 of 43
more or less anticipated, as when the insured happens to have violent enemies or is found in circumstances that
would make his life fair game of third parties.
As to the rest, I have no doubt that the killing of the insured in this case is as intentional as any intentional act
can be, hence this concurrence.
TEEHANKEE, J., dissenting:
The sole issue at bar is the correctness in law of the lower court's appealed decision adjudging defendant
insurance company liable, under its supplementary contract denominated "Accidental Death Benefit Clause"
with the deceased insured, to plaintiffs-beneficiaries (excluding plaintiff Emilia T. Biagtan) in an additional
amount of P5,000.00 (with corresponding legal interest) and ruling that defendant company had failed to present
any evidence to substantiate its defense that the insured's death came within the stipulated exceptions.
Defendant's accidental death benefit clause expressly provides:
ACCIDENTAL DEATH BENEFIT. (hereinafter called the benefit). Upon receipt and approval of
due proof that the death of the Insured resulted directly from bodily injury effected solely through
external and violent means sustained in an accident, within ninety days after the date of
sustaining such injury, and independently of all other causes, this Company shall pay, in addition
to the sum insured specified on the first page of this Policy, a further sum equal to said sum
insured payable at the same time and in the same manner as said sum insured, provided, that
such death occurred during the continuance of this Clause and of this Policy and before the
sixtieth birthday of the Insured." 1
A long list of exceptions and an Automatic Discontinuance clause immediately follow thereafter, thus:
EXCEPTIONS. The Benefit shall not apply if the Insured's death shall result, either directly or
indirectly, from any one of the following causes:
(1) Self-destruction or self-inflicted injuries, whether the Insured be sane or insane;
(2) Bodily or mental infirmity or disease of any kind;
(3) Poisoning or infection, other than infection occurring simultaneously with and in consequence
of a cut or wound sustained in an accident;
(4) Injuries of which there is no visible contusions or wound on the exterior of the body, drowning
and internal injuries revealed by autopsy excepted;
(5) Any injuries received (a) while on police duty in any military, naval or police organization; (b)
in any riot, civil commotion, insurrection or war or any act incident thereto; (c) while travelling as
a passenger or otherwise in any form of submarine transportation, or while engaging in
submarine operations; (d) in any violation of the law by the Insured or assault provoked by the
Insured; (e) that has been inflicted intentionally by a third party, either with or without provocation
on the part of the Insured, and whether or not the attack or the defense by the third party was
caused by a violation of the law by the Insured;
(6) Operating or riding in or descending from any kind of aircraft if the Insured is a pilot, officer or
member of the crew of the aircraft or is giving or receiving any kind of training or instruction or
has any duties aboard the aircraft or requiring descent therefrom; and
Page 15 of 43
(7) Atomic energy explosion of any nature whatsoever.
The Company, before making any payment under this Clause, shall have the right and
opportunity to examine the body and make an autopsy thereof.
AUTOMATIC DISCONTINUANCE. This Benefit shall automatically terminate and the additional
premium therefor shall cease to be payable when and if:
(1) This Policy is surrendered for cash, paid-up insurance or extended term insurance; or
(2) The benefit under the Total and Permanent Disability Waiver of Premium Certificate is
granted to the insured; or
(3) The Insured engages in military, naval or aeronautic service in time of war; or
(4) The policy anniversary immediately preceding the sixtieth birthday of the Insured is reached. 2
It is undisputed that, as recited in the lower court's decision, the insured met his death, as follows: "that on the
night of May 20, 1964 or the first hours of May 21, 1964, while the said life policy and supplementary contract
were in full force and effect, the house of insured Juan S. Biagtan was robbed by a band of robbers who were
charged in and convicted by the Court of First Instance of Pangasinan for robbery with homicide; that in
committing the robbery, the robbers, on reaching the staircase landing of the second floor, rushed towards the
doors of the second floor room, where they suddenly met a person near the door of one of the rooms who
turned out to be the insured Juan S. Biagtan who received thrust from their sharp-pointed instruments, causing
wounds on the body of said Juan S. Biagtan resulting in his death at about 7 a.m. on the same day, May 21,
1964." 3
Page 16 of 43

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 100970 September 2, 1992
FINMAN GENERAL ASSURANCE CORPORATION, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and JULIA SURPOSA, respondents.
Aquino and Associates for petitioner.
Public Attorney's Office for private respondent.
NOCON, J.:
This is a petition for certiorari with a prayer for the issuance of a restraining order and preliminary mandatory
injunction to annul and set aside the decision of the Court of Appeals dated July 11, 1991, 1 affirming the decision
dated March 20, 1990 of the Insurance Commission 2 in ordering petitioner Finman General Assurance Corporation to
pay private respondent Julia Surposa the proceeds of the personal accident Insurance policy with interest.
It appears on record that on October 22, 1986, deceased, Carlie Surposa was insured with petitioner Finman
General Assurance Corporation under Finman General Teachers Protection Plan Master Policy No. 2005 and
Individual Policy No. 08924 with his parents, spouses Julia and Carlos Surposa, and brothers Christopher,
Charles, Chester and Clifton, all surnamed, Surposa, as beneficiaries. 3
While said insurance policy was in full force and effect, the insured, Carlie Surposa, died on October 18, 1988
as a result of a stab wound inflicted by one of the three (3) unidentified men without provocation and warning on
the part of the former as he and his cousin, Winston Surposa, were waiting for a ride on their way home along
Rizal-Locsin Streets, Bacolod City after attending the celebration of the "Maskarra Annual Festival."
Thereafter, private respondent and the other beneficiaries of said insurance policy filed a written notice of claim
with the petitioner insurance company which denied said claim contending that murder and assault are not
within the scope of the coverage of the insurance policy.
On February 24, 1989, private respondent filed a complaint with the Insurance Commission which subsequently
rendered a decision, the pertinent portion of which reads:
In the light of the foregoing. we find respondent liable to pay complainant the sum of P15,000.00
representing the proceeds of the policy with interest. As no evidence was submitted to prove the
claim for mortuary aid in the sum of P1,000.00, the same cannot be entertained.
WHEREFORE, judgment is hereby rendered ordering respondent to pay complainant the sum of
P15,000.00 with legal interest from the date of the filing of the complaint until fully satisfied. With
costs. 4
Page 17 of 43
On July 11, 1991, the appellate court affirmed said decision.
Hence, petitioner filed this petition alleging grove abuse of discretion on the part of the appellate court in
applying the principle of "expresso unius exclusio alterius" in a personal accident insurance policy since death
resulting from murder and/or assault are impliedly excluded in said insurance policy considering that the cause
of death of the insured was not accidental but rather a deliberate and intentional act of the assailant in killing the
former as indicated by the location of the lone stab wound on the insured. Therefore, said death was committed
with deliberate intent which, by the very nature of a personal accident insurance policy, cannot be indemnified.
We do not agree.
The terms "accident" and "accidental" as used in insurance contracts have not acquired any
technical meaning, and are construed by the courts in their ordinary and common acceptation.
Thus, the terms have been taken to mean that which happen by chance or fortuitously, without
intention and design, and which is unexpected, unusual, and unforeseen. An accident is an
event that takes place without one's foresight or expectation — an event that proceeds from an
unknown cause, or is an unusual effect of a known cause and, therefore, not expected.
. . . The generally accepted rule is that, death or injury does not result from accident or
accidental means within the terms of an accident-policy if it is the natural result of the insured's
voluntary act, unaccompanied by anything unforeseen except the death or injury. There is no
accident when a deliberate act is performed unless some additional, unexpected, independent,
and unforeseen happening occurs which produces or brings about the result of injury or death. In
other words, where the death or injury is not the natural or probable result of the insured's
voluntary act, or if something unforeseen occurs in the doing of the act which produces the
injury, the resulting death is within the protection of the policies insuring against death or injury
from accident. 5
As correctly pointed out by the respondent appellate court in its decision:
In the case at bar, it cannot be pretended that Carlie Surposa died in the course of an assault or
murder as a result of his voluntary act considering the very nature of these crimes. In the first
place, the insured and his companion were on their way home from attending a festival. They
were confronted by unidentified persons. The record is barren of any circumstance showing how
the stab wound was inflicted. Nor can it be pretended that the malefactor aimed at the insured
precisely because the killer wanted to take his life. In any event, while the act may not exempt
the unknown perpetrator from criminal liability, the fact remains that the happening was a pure
accident on the part of the victim. The insured died from an event that took place without his
foresight or expectation, an event that proceeded from an unusual effect of a known cause and,
therefore, not expected. Neither can it be said that where was a capricious desire on the part of
the accused to expose his life to danger considering that he was just going home after attending
a festival. 6
Furthermore, the personal accident insurance policy involved herein specifically enumerated only ten (10)
circumstances wherein no liability attaches to petitioner insurance company for any injury, disability or loss
suffered by the insured as a result of any of the stimulated causes. The principle of " expresso unius exclusio
alterius" — the mention of one thing implies the exclusion of another thing — is therefore applicable in the
instant case since murder and assault, not having been expressly included in the enumeration of the
circumstances that would negate liability in said insurance policy cannot be considered by implication to
discharge the petitioner insurance company from liability for, any injury, disability or loss suffered by the insured.
Thus, the failure of the petitioner insurance company to include death resulting from murder or assault among
the prohibited risks leads inevitably to the conclusion that it did not intend to limit or exempt itself from liability for
such death.
Page 18 of 43
Article 1377 of the Civil Code of the Philippines provides that:
The interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity.
Moreover,
it is well settled that contracts of insurance are to be construed liberally in favor of the insured
and strictly against the insurer. Thus ambiguity in the words of an insurance contract should be
interpreted in favor of its beneficiary. 7
WHEREFORE, finding no irreversible error in the decision of the respondent Court of Appeals, the petition
for certiorari with restraining order and preliminary injunction is hereby DENIED for lack of merit.
SO ORDERED.
Page 19 of 43

SUPREME COURT
Manila
EN BANC
G.R. No. L-4611 December 17, 1955
QUA CHEE GAN, plaintiff-appellee,

vs.
LAW UNION AND ROCK INSURANCE CO., LTD., represented by its agent, WARNER, BARNES AND CO.,
LTD., defendant-appellant.
Delgado, Flores & Macapagal for appellant.

Andres Aguilar, Zacarias Gutierrez Lora, Gregorio Sabater and Perkins, Ponce Enrile & Contreras for appellee.
REYES, J. B. L., J.:
Qua Chee Gan, a merchant of Albay, instituted this action in 1940, in the Court of First Instance of said
province, seeking to recover the proceeds of certain fire insurance policies totalling P370,000, issued by the Law
Union & Rock Insurance Co., Ltd., upon certain bodegas and merchandise of the insured that were burned on
June 21, 1940. The records of the original case were destroyed during the liberation of the region, and were
reconstituted in 1946. After a trial that lasted several years, the Court of First Instance rendered a decision in
favor of the plaintiff, the dispositive part whereof reads as follows:
Wherefore, judgment is rendered for the plaintiff and against the defendant condemning the latter to pay
the former —
(a) Under the first cause of action, the sum of P146,394.48;
(b) Under the second cause of action, the sum of P150,000;
(c) Under the third cause of action, the sum of P5,000;
(d) Under the fourth cause of action, the sum of P15,000; and
(e) Under the fifth cause of action, the sum of P40,000;
all of which shall bear interest at the rate of 8% per annum in accordance with Section 91 (b) of the Insurance
Act from September 26, 1940, until each is paid, with costs against the defendant.
The complaint in intervention of the Philippine National Bank is dismissed without costs. (Record on Appeal,
166-167.)
From the decision, the defendant Insurance Company appealed directly to this Court.
The record shows that before the last war, plaintiff-appellee owned four warehouses or bodegas (designated as
Bodegas Nos. 1 to 4) in the municipality of Tabaco, Albay, used for the storage of stocks of copra and of hemp,
baled and loose, in which the appellee dealth extensively. They had been, with their contents, insured with the
Page 20 of 43
defendant Company since 1937, and the lose made payable to the Philippine National Bank as mortgage of the
hemp and crops, to the extent of its interest. On June, 1940, the insurance stood as follows:
Policy No. Property Insured Amount

2637164
Bodega No. 1 (Building) P15,000.00
(Exhibit "LL")
Bodega No. 2 (Building) 10,000.00
Bodega No. 3 (Building) 25,000.00
2637165
(Exhibit "JJ") Bodega No. 4 (Building) 10,000.00
Hemp Press — moved by steam
5,000.00
engine
Merchandise contents (copra
2637345
and empty sacks of Bodega No. 150,000.00
(Exhibit "X")
1)
2637346 Merchandise contents (hemp) of
150,000.00
(Exhibit "Y") Bodega No. 3
2637067 Merchandise contents (loose
5,000.00
(Exhibit "GG") hemp) of Bodega No. 4
Total P370,000.00
Fire of undetermined origin that broke out in the early morning of July 21, 1940, and lasted almost one week,
gutted and completely destroyed Bodegas Nos. 1, 2 and 4, with the merchandise stored theren. Plaintiff-
appellee informed the insurer by telegram on the same date; and on the next day, the fire adjusters engaged by
appellant insurance company arrived and proceeded to examine and photograph the premises, pored over the
books of the insured and conducted an extensive investigation. The plaintiff having submitted the corresponding
fire claims, totalling P398,562.81 (but reduced to the full amount of the insurance, P370,000), the Insurance
Company resisted payment, claiming violation of warranties and conditions, filing of fraudulent claims, and that
the fire had been deliberately caused by the insured or by other persons in connivance with him.
With counsel for the insurance company acting as private prosecutor, Que Chee Gan, with his brother, Qua
Chee Pao, and some employees of his, were indicted and tried in 1940 for the crime of arson, it being claimed
that they had set fire to the destroyed warehouses to collect the insurance. They were, however, acquitted by
the trial court in a final decision dated July 9, 1941 (Exhibit WW). Thereafter, the civil suit to collect the insurance
money proceeded to its trial and termination in the Court below, with the result noted at the start of this opinion.
The Philippine National Bank's complaint in intervention was dismissed because the appellee had managed to
pay his indebtedness to the Bank during the pendecy of the suit, and despite the fire losses.
In its first assignment of error, the insurance company alleges that the trial Court should have held that the
policies were avoided for breach of warranty, specifically the one appearing on a rider pasted (with other similar
riders) on the face of the policies (Exhibits X, Y, JJ and LL). These riders were attached for the first time in 1939,
and the pertinent portions read as follows:
Memo. of Warranty. — The undernoted Appliances for the extinction of fire being kept on the premises
insured hereby, and it being declared and understood that there is an ample and constant water supply
with sufficient pressure available at all seasons for the same, it is hereby warranted that the said
appliances shall be maintained in efficient working order during the currency of this policy, by reason
whereof a discount of 2 1/2 per cent is allowed on the premium chargeable under this policy.
Page 21 of 43
Hydrants in the compound, not less in number than one for each 150 feet of external wall measurement
of building, protected, with not less than 100 feet of hose piping and nozzles for every two hydrants kept
under cover in convenient places, the hydrants being supplied with water pressure by a pumping engine,
or from some other source, capable of discharging at the rate of not less than 200 gallons of water per
minute into the upper story of the highest building protected, and a trained brigade of not less than 20
men to work the same.'
It is argued that since the bodegas insured had an external wall perimeter of 500 meters or 1,640 feet, the
appellee should have eleven (11) fire hydrants in the compound, and that he actually had only two (2), with a
further pair nearby, belonging to the municipality of Tabaco.
We are in agreement with the trial Court that the appellant is barred by waiver (or rather estoppel) to claim
violation of the so-called fire hydrants warranty, for the reason that knowing fully all that the number of hydrants
demanded therein never existed from the very beginning, the appellant neverthless issued the policies in
question subject to such warranty, and received the corresponding premiums. It would be perilously close to
conniving at fraud upon the insured to allow appellant to claims now as void ab initio the policies that it had
issued to the plaintiff without warning of their fatal defect, of which it was informed, and after it had misled the
defendant into believing that the policies were effective.
The insurance company was aware, even before the policies were issued, that in the premises insured there
were only two fire hydrants installed by Qua Chee Gan and two others nearby, owned by the municipality of
TAbaco, contrary to the requirements of the warranty in question. Such fact appears from positive testimony for
the insured that appellant's agents inspected the premises; and the simple denials of appellant's representative
(Jamiczon) can not overcome that proof. That such inspection was made is moreover rendered probable by its
being a prerequisite for the fixing of the discount on the premium to which the insured was entitled, since the
discount depended on the number of hydrants, and the fire fighting equipment available (See "Scale of
Allowances" to which the policies were expressly made subject). The law, supported by a long line of cases, is
expressed by American Jurisprudence (Vol. 29, pp. 611-612) to be as follows:
It is usually held that where the insurer, at the time of the issuance of a policy of insurance, has
knowledge of existing facts which, if insisted on, would invalidate the contract from its very inception,
such knowledge constitutes a waiver of conditions in the contract inconsistent with the facts, and the
insurer is stopped thereafter from asserting the breach of such conditions. The law is charitable enough
to assume, in the absence of any showing to the contrary, that an insurance company intends to
executed a valid contract in return for the premium received; and when the policy contains a condition
which renders it voidable at its inception, and this result is known to the insurer, it will be presumed to
have intended to waive the conditions and to execute a binding contract, rather than to have deceived
the insured into thinking he is insured when in fact he is not, and to have taken his money without
consideration. (29 Am. Jur., Insurance, section 807, at pp. 611-612.)
The reason for the rule is not difficult to find.
The plain, human justice of this doctrine is perfectly apparent. To allow a company to accept one's
money for a policy of insurance which it then knows to be void and of no effect, though it knows as it
must, that the assured believes it to be valid and binding, is so contrary to the dictates of honesty and
fair dealing, and so closely related to positive fraud, as to the abhorent to fairminded men. It would be to
allow the company to treat the policy as valid long enough to get the preium on it, and leave it at liberty
to repudiate it the next moment. This cannot be deemed to be the real intention of the parties. To hold
that a literal construction of the policy expressed the true intention of the company would be to indict it,
for fraudulent purposes and designs which we cannot believe it to be guilty of (Wilson vs. Commercial
Union Assurance Co., 96 Atl. 540, 543-544).
Page 22 of 43
The inequitableness of the conduct observed by the insurance company in this case is heightened by the fact
that after the insured had incurred the expense of installing the two hydrants, the company collected the
premiums and issued him a policy so worded that it gave the insured a discount much smaller than that he was
normaly entitledto. According to the "Scale of Allowances," a policy subject to a warranty of the existence of one
fire hydrant for every 150 feet of external wall entitled the insured to a discount of 7 1/2 per cent of the premium;
while the existence of "hydrants, in compund" (regardless of number) reduced the allowance on the premium to
a mere 2 1/2 per cent. This schedule was logical, since a greater number of hydrants and fire fighting appliances
reduced the risk of loss. But the appellant company, in the particular case now before us, so worded the policies
that while exacting the greater number of fire hydrants and appliances, it kept the premium discount at the
minimum of 2 1/2 per cent, thereby giving the insurance company a double benefit. No reason is shown why
appellant's premises, that had been insured with appellant for several years past, suddenly should be regarded
in 1939 as so hazardous as to be accorded a treatment beyond the limits of appellant's own scale of
allowances. Such abnormal treatment of the insured strongly points at an abuse of the insurance company's
selection of the words and terms of the contract, over which it had absolute control.
These considerations lead us to regard the parol evidence rule, invoked by the appellant as not applicable to the
present case. It is not a question here whether or not the parties may vary a written contract by oral evidence;
but whether testimony is receivable so that a party may be, by reason of inequitable conduct shown, estopped
from enforcing forfeitures in its favor, in order to forestall fraud or imposition on the insured.
Receipt of Premiums or Assessments afte Cause for Forfeiture Other than Nonpayment. — It is a well
settled rule of law that an insurer which with knowledge of facts entitling it to treat a policy as no longer
in force, receives and accepts a preium on the policy, estopped to take advantage of the forfeiture. It
cannot treat the policy as void for the purpose of defense to an action to recover for a loss thereafter
occurring and at the same time treat it as valid for the purpose of earning and collecting further
premiums." (29 Am. Jur., 653, p. 657.)
It would be unconscionable to permit a company to issue a policy under circumstances which it knew
rendered the policy void and then to accept and retain premiums under such a void policy. Neither law
nor good morals would justify such conduct and the doctrine of equitable estoppel is peculiarly
applicable to the situation. (McGuire vs. Home Life Ins. Co. 94 Pa. Super Ct. 457.)
Moreover, taking into account the well known rule that ambiguities or obscurities must be strictly interpreted
aganst the prty that caused them, 1the "memo of warranty" invoked by appellant bars the latter from questioning
the existence of the appliances called for in the insured premises, since its initial expression, "the undernoted
appliances for the extinction of fire being kept on the premises insured hereby, . . . it is hereby warranted . . .",
admists of interpretation as an admission of the existence of such appliances which appellant cannot now
contradict, should the parol evidence rule apply.
The alleged violation of the warranty of 100 feet of fire hose for every two hydrants, must be equally rejected,
since the appellant's argument thereon is based on the assumption that the insured was bound to maintain no
less than eleven hydrants (one per 150 feet of wall), which requirement appellant is estopped from enforcing.
The supposed breach of the wter pressure condition is made to rest on the testimony of witness Serra, that the
water supply could fill a 5-gallon can in 3 seconds; appellant thereupon inferring that the maximum quantity
obtainable from the hydrants was 100 gallons a minute, when the warranty called for 200 gallons a minute. The
transcript shows, however, that Serra repeatedly refused and professed inability to estimate the rate of
discharge of the water, and only gave the "5-gallon per 3-second" rate because the insistence of appellant's
counsel forced the witness to hazard a guess. Obviously, the testimony is worthless and insufficient to establish
the violation claimed, specially since the burden of its proof lay on appellant.
As to maintenance of a trained fire brigade of 20 men, the record is preponderant that the same was organized,
and drilled, from time to give, altho not maintained as a permanently separate unit, which the warranty did not
require. Anyway, it would be unreasonable to expect the insured to maintain for his compound alone a fire
Page 23 of 43
fighting force that many municipalities in the Islands do not even possess. There is no merit in appellant's claim
that subordinate membership of the business manager (Co Cuan) in the fire brigade, while its direction was
entrusted to a minor employee unders the testimony improbable. A business manager is not necessarily adept
at fire fighting, the qualities required being different for both activities.
Under the second assignment of error, appellant insurance company avers, that the insured violated the "Hemp
Warranty" provisions of Policy No. 2637165 (Exhibit JJ), against the storage of gasoline, since appellee
admitted that there were 36 cans (latas) of gasoline in the building designed as "Bodega No. 2" that was a
separate structure not affected by the fire. It is well to note that gasoline is not specifically mentioned among the
prohibited articles listed in the so-called "hemp warranty." The cause relied upon by the insurer speaks of "oils
(animal and/or vegetable and/or mineral and/or their liquid products having a flash point below 300o
Fahrenheit", and is decidedly ambiguous and uncertain; for in ordinary parlance, "Oils" mean "lubricants" and
not gasoline or kerosene. And how many insured, it may well be wondered, are in a position to understand or
determine "flash point below 003o Fahrenheit. Here, again, by reason of the exclusive control of the insurance
company over the terms and phraseology of the contract, the ambiguity must be held strictly against the insurer
and liberraly in favor of the insured, specially to avoid a forfeiture (44 C. J. S., pp. 1166-1175; 29 Am. Jur. 180).
Insurance is, in its nature, complex and difficult for the layman to understand. Policies are prepared by
experts who know and can anticipate the hearing and possible complications of every contingency. So
long as insurance companies insist upon the use of ambiguous, intricate and technical provisions, which
conceal rather than frankly disclose, their own intentions, the courts must, in fairness to those who
purchase insurance, construe every ambiguity in favor of the insured. (Algoe vs. Pacific Mut. L. Ins. Co.,
91 Wash. 324, LRA 1917A, 1237.)
An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat the very
purpose for which the policy was procured (Moore vs. Aetna Life Insurance Co., LRA 1915D, 264).
We see no reason why the prohibition of keeping gasoline in the premises could not be expressed clearly and
unmistakably, in the language and terms that the general public can readily understand, without resort to
obscure esoteric expression (now derisively termed "gobbledygook"). We reiterate the rule stated in Bachrach
vs. British American Assurance Co. (17 Phil. 555, 561):
If the company intended to rely upon a condition of that character, it ought to have been plainly
expressed in the policy.
This rigid application of the rule on ambiguities has become necessary in view of current business practices.
The courts cannot ignore that nowadays monopolies, cartels and concentrations of capital, endowed with
overwhelming economic power, manage to impose upon parties dealing with them cunningly prepared
"agreements" that the weaker party may not change one whit, his participation in the "agreement" being reduced
to the alternative to take it or leave it" labelled since Raymond Baloilles" contracts by adherence" (con tracts
d'adhesion), in contrast to these entered into by parties bargaining on an equal footing, such contracts (of which
policies of insurance and international bills of lading are prime examples) obviously call for greater strictness
and vigilance on the part of courts of justice with a view to protecting the weaker party from abuses and
imposition, and prevent their becoming traps for the unwarry (New Civil Coee, Article 24; Sent. of Supreme
Court of Spain, 13 Dec. 1934, 27 February 1942).
Si pudiera estimarse que la condicion 18 de la poliza de seguro envolvia alguna oscuridad, habra de ser
tenido en cuenta que al seguro es, practicamente un contrato de los llamados de adhesion y por
consiguiente en caso de duda sobre la significacion de las clausulas generales de una poliza —
redactada por las compafijas sin la intervencion alguna de sus clientes — se ha de adoptar de acuerdo
con el articulo 1268 del Codigo Civil, la interpretacion mas favorable al asegurado, ya que la obscuridad
es imputable a la empresa aseguradora, que debia haberse explicado mas claramante. (Dec. Trib. Sup.
of Spain 13 Dec. 1934)
Page 24 of 43
The contract of insurance is one of perfect good faith (uferrimal fidei) not for the insured alone, but equally so for
the insurer; in fact, it is mere so for the latter, since its dominant bargaining position carries with it stricter
responsibility.
Another point that is in favor of the insured is that the gasoline kept in Bodega No. 2 was only incidental to his
business, being no more than a customary 2 day's supply for the five or six motor vehicles used for transporting
of the stored merchandise (t. s. n., pp. 1447-1448). "It is well settled that the keeping of inflammable oils on the
premises though prohibited by the policy does not void it if such keeping is incidental to the business." Bachrach
vs. British American Ass. Co., 17 Phil. 555, 560); and "according to the weight of authority, even though there
are printed prohibitions against keeping certain articles on the insured premises the policy will not be avoided by
a violation of these prohibitions, if the prohibited articles are necessary or in customary use in carrying on the
trade or business conducted on the premises." (45 C. J. S., p. 311; also 4 Couch on Insurance, section 966b). It
should also be noted that the "Hemp Warranty" forbade storage only "in the building to which this insurance
applies and/or in any building communicating therewith", and it is undisputed that no gasoline was stored in the
burned bodegas, and that "Bodega No. 2" which was not burned and where the gasoline was found, stood
isolated from the other insured bodegas.
The charge that the insured failed or refused to submit to the examiners of the insurer the books, vouchers, etc.
demanded by them was found unsubstantiated by the trial Court, and no reason has been shown to alter this
finding. The insured gave the insurance examiner all the date he asked for (Exhibits AA, BB, CCC and Z), and
the examiner even kept and photographed some of the examined books in his possession. What does appear to
have been rejected by the insured was the demand that he should submit "a list of all books, vouchers,
receipts and other records" (Age 4, Exhibit 9-c); but the refusal of the insured in this instance was well justified,
since the demand for a list of all the vouchers (which were not in use by the insured) and receipts was positively
unreasonable, considering that such listing was superfluous because the insurer was not denied access to the
records, that the volume of Qua Chee Gan's business ran into millions, and that the demand was made just after
the fire when everything was in turmoil. That the representatives of the insurance company were able to secure
all the date they needed is proved by the fact that the adjuster Alexander Stewart was able to prepare his own
balance sheet (Exhibit L of the criminal case) that did not differ from that submitted by the insured (Exhibit J)
except for the valuation of the merchandise, as expressly found by the Court in the criminal case for arson.
(Decision, Exhibit WW).
How valuations may differ honestly, without fraud being involved, was strikingly illustrated in the decision of the
arson case (Exhibit WW) acquiting Qua Choc Gan, appellee in the present proceedings. The decision states
(Exhibit WW, p. 11):
Alexander D. Stewart declaro que ha examinado los libros de Qua Choc Gan en Tabaco asi como su
existencia de copra y abaca en las bodega al tiempo del incendio durante el periodo comprendido
desde el 1.o de enero al 21 de junio de 1940 y ha encontrado que Qua Choc Gan ha sufrico una
perdida de P1,750.76 en su negocio en Tabaco. Segun Steward al llegar a este conclusion el ha
tenidoen cuenta el balance de comprobacion Exhibit 'J' que le ha entregado el mismo acusado Que
Choc Gan en relacion con sus libros y lo ha encontrado correcto a excepcion de los precios de abaca y
copra que alli aparecen que no estan de acuerdo con los precios en el mercado. Esta comprobacion
aparece en el balance mercado exhibit J que fue preparado por el mismo testigo.
In view of the discrepancy in the valuations between the insured and the adjuster Stewart for the insurer, the
Court referred the controversy to a government auditor, Apolonio Ramos; but the latter reached a different result
from the other two. Not only that, but Ramos reported two different valuations that could be reached according
to the methods employed (Exhibit WW, p. 35):
La ciencia de la contabilidad es buena, pues ha tenido sus muchos usos buenos para promovar el
comercio y la finanza, pero en el caso presente ha resultado un tanto cumplicada y acomodaticia, como
lo prueba el resultado del examen hecho por los contadores Stewart y Ramos, pues el juzgado no
Page 25 of 43
alcanza a ver como habiendo examinado las mismas partidas y los mismos libros dichos contadores
hayan de llegara dos conclusiones que difieron sustancialmente entre si. En otras palabras, no
solamente la comprobacion hecha por Stewart difiere de la comprobacion hecha por Ramos sino que,
segun este ultimo, su comprobacion ha dado lugar a dos resultados diferentes dependiendo del metodo
que se emplea.
Clearly then, the charge of fraudulent overvaluation cannot be seriously entertained. The insurer attempted to
bolster its case with alleged photographs of certain pages of the insurance book (destroyed by the war) of
insured Qua Chee Gan (Exhibits 26-A and 26-B) and allegedly showing abnormal purchases of hemp and copra
from June 11 to June 20, 1940. The Court below remained unconvinced of the authenticity of those
photographs, and rejected them, because they were not mentioned not introduced in the criminal case; and
considering the evident importance of said exhibits in establishing the motive of the insured in committing the
arson charged, and the absence of adequate explanation for their omission in the criminal case, we cannot say
that their rejection in the civil case constituted reversible error.
The next two defenses pleaded by the insurer, — that the insured connived at the loss and that the fraudulently
inflated the quantity of the insured stock in the burnt bodegas, — are closely related to each other. Both
defenses are predicted on the assumption that the insured was in financial difficulties and set the fire to defraud
the insurance company, presumably in order to pay off the Philippine National Bank, to which most of the
insured hemp and copra was pledged. Both defenses are fatally undermined by the established fact that,
notwithstanding the insurer's refusal to pay the value of the policies the extensive resources of the insured
(Exhibit WW) enabled him to pay off the National Bank in a short time; and if he was able to do so, no motive
appears for attempt to defraud the insurer. While the acquittal of the insured in the arson case is not res
judicata on the present civil action, the insurer's evidence, to judge from the decision in the criminal case, is
practically identical in both cases and must lead to the same result, since the proof to establish the defense of
connivance at the fire in order to defraud the insurer "cannot be materially less convincing than that required in
order to convict the insured of the crime of arson"(Bachrach vs. British American Assurance Co., 17 Phil. 536).
As to the defense that the burned bodegas could not possibly have contained the quantities of copra and hemp
stated in the fire claims, the insurer's case rests almost exclusively on the estimates, inferences and
conclusionsAs to the defense that the burned bodegas could not possibly have contained the quantities of copra
and hemp stated in the fire claims, the insurer's case rests almost exclusively on the estimates, inferences and
conclusions of its adjuster investigator, Alexander D. Stewart, who examined the premises during and after the
fire. His testimony, however, was based on inferences from the photographs and traces found after the fire, and
must yield to the contradictory testimony of engineer Andres Bolinas, and specially of the then Chief of the Loan
Department of the National Bank's Legaspi branch, Porfirio Barrios, and of Bank Appraiser Loreto Samson, who
actually saw the contents of the bodegas shortly before the fire, while inspecting them for the mortgagee Bank.
The lower Court was satisfied of the veracity and accuracy of these witnesses, and the appellant insurer has
failed to substantiate its charges aganst their character. In fact, the insurer's repeated accusations that these
witnesses were later "suspended for fraudulent transactions" without giving any details, is a plain attempt to
create prejudice against them, without the least support in fact.
Stewart himself, in testifying that it is impossible to determine from the remains the quantity of hemp burned (t. s.
n., pp. 1468, 1470), rebutted appellant's attacks on the refusal of the Court below to accept its inferences from
the remains shown in the photographs of the burned premises. It appears, likewise, that the adjuster's
calculations of the maximum contents of the destroyed warehouses rested on the assumption that all the copra
and hemp were in sacks, and on the result of his experiments to determine the space occupied by definite
amounts of sacked copra. The error in the estimates thus arrived at proceeds from the fact that a large amount
of the insured's stock were in loose form, occupying less space than when kept in sacks; and from Stewart's
obvious failure to give due allowance for the compression of the material at the bottom of the piles (t. s. n., pp.
1964, 1967) due to the weight of the overlying stock, as shown by engineer Bolinas. It is probable that the errors
were due to inexperience (Stewart himself admitted that this was the first copra fire he had investigated); but it is
clear that such errors render valueles Stewart's computations. These were in fact twice passed upon and twice
Page 26 of 43
rejected by different judges (in the criminal and civil cases) and their concordant opinion is practically
conclusive.
The adjusters' reports, Exhibits 9-A and 9-B, were correctly disregarded by the Court below, since the opinions
stated therein were based on ex parte investigations made at the back of the insured; and the appellant did not
present at the trial the original testimony and documents from which the conclusions in the report were
drawn.lawphi1.net
Appellant insurance company also contends that the claims filed by the insured contained false and fraudulent
statements that avoided the insurance policy. But the trial Court found that the discrepancies were a result of the
insured's erroneous interpretation of the provisions of the insurance policies and claim forms, caused by his
imperfect knowledge of English, and that the misstatements were innocently made and without intent to defraud.
Our review of the lengthy record fails to disclose reasons for rejecting these conclusions of the Court below. For
example, the occurrence of previous fires in the premises insured in 1939, altho omitted in the claims, Exhibits
EE and FF, were nevertheless revealed by the insured in his claims Exhibits Q (filed simultaneously with them),
KK and WW. Considering that all these claims were submitted to the smae agent, and that this same agent had
paid the loss caused by the 1939 fire, we find no error in the trial Court's acceptance of the insured's explanation
that the omission in Exhibits EE and FF was due to inadvertance, for the insured could hardly expect under such
circumstances, that the 1939 would pass unnoticed by the insurance agents. Similarly, the 20 per cent overclaim
on 70 per cent of the hemo stock, was explained by the insured as caused by his belief that he was entitled to
include in the claim his expected profit on the 70 per cent of the hemp, because the same was already
contracted for and sold to other parties before the fire occurred. Compared with other cases of over-valuation
recorded in our judicial annals, the 20 per cent excess in the case of the insured is not by itself sufficient to
establish fraudulent intent. Thus, in Yu Cua vs. South British Ins. Co., 41 Phil. 134, the claim was fourteen (14)
times (1,400 per cent) bigger than the actual loss; in Go Lu vs. Yorkshire Insurance Co., 43 Phil., 633, eight (8)
times (800 per cent); in Tuason vs. North China Ins. Co., 47 Phil. 14, six (6) times (600 per cent); in Tan It vs.
Sun Insurance, 51 Phil. 212, the claim totalled P31,860.85 while the goods insured were inventoried at O13,113.
Certainly, the insured's overclaim of 20 per cent in the case at bar, duly explained by him to the Court a quo,
appears puny by comparison, and can not be regarded as "more than misstatement, more than inadvertence of
mistake, more than a mere error in opinion, more than a slight exaggeration" (Tan It vs. Sun Insurance
Office, ante) that would entitle the insurer to avoid the policy. It is well to note that the overchange of 20 per cent
was claimed only on a part (70 per cent) of the hemp stock; had the insured acted with fraudulent intent, nothing
prevented him from increasing the value of all of his copra, hemp and buildings in the same proportion. This also
applies to the alleged fraudulent claim for burned empty sacks, that was likewise explained to our satisfaction
and that of the trial Court. The rule is that to avoid a policy, the false swearing must be wilful and with intent to
defraud (29 Am. Jur., pp. 849-851) which was not the cause. Of course, the lack of fraudulent intent would not
authorize the collection of the expected profit under the terms of the polices, and the trial Court correctly deducte
the same from its award.
We find no reversible error in the judgment appealed from, wherefore the smae is hereby affirmed. Costs
against the appellant. So ordered.
Page 27 of 43

SUPREME COURT
Manila
EN BANC
G.R. No. L-16215 June 29, 1963
SIMEON DEL ROSARIO, plaintiff-appellee,

vs.
THE EQUITABLE INSURANCE AND CASUALTY CO., INC., defendant-appellant.
Vicente J. Francisco and Jose R. Francisco for plaintiff-appellee.

K. V. Faylona for defendant-appellant.
PAREDES, J.:
On February 7, 1957, the defendant Equitable Insurance and Casualty Co., Inc., issued Personal Accident
Policy No. 7136 on the life of Francisco del Rosario, alias Paquito Bolero, son of herein plaintiff-appellee,
binding itself to pay the sum of P1,000.00 to P3,000.00, as indemnity for the death of the insured. The pertinent
provisions of the Policy, recite:
Part I. Indemnity For Death
If the insured sustains any bodily injury which is effected solely through violent, external, visible and
accidental means, and which shall result, independently of all other causes and within sixty (60) days
from the occurrence thereof, in the Death of the Insured, the Company shall pay the amount set
opposite such injury:
Section 1. Injury sustained other

than those specified below unless
excepted hereinafter. . . . . . . . P1,000.00
Section 2. Injury sustained by the
wrecking or disablement of a
railroad passenger car or street
railway car in or on which the
Insured is travelling as a
farepaying passenger. . . . . . . . P1,500.00
burning of a church, theatre, public
library or municipal administration
building while the Insured is
therein at the commencement of
the fire. . . . . . . . P2,000.00
wrecking or disablement of a
regular passenger elevator car in
which the Insured is being
conveyed as a passenger
(Elevator in mines excluded)
Page 28 of 43
P2,500.00
Section 5. Injury sustained by a
stroke of lightning or by a cyclone.
....... P3,000.00
xxx xxx xxx
Part VI. Exceptions
This policy shall not cover disappearance of the Insured nor shall it cover Death, Disability, Hospital
fees, or Loss of Time, caused to the insured:
. . . (h) By drowning except as a consequence of the wrecking or disablement in the Philippine waters of
a passenger steam or motor vessel in which the Insured is travelling as a farepaying passenger; . . . .
A rider to the Policy contained the following:
IV. DROWNING
It is hereby declared and agreed that exemption clause Letter (h) embodied in PART VI of the policy is hereby
waived by the company, and to form a part of the provision covered by the policy.
On February 24, 1957, the insured Francisco del Rosario, alias Paquito Bolero, while on board the motor launch
"ISLAMA" together with 33 others, including his beneficiary in the Policy, Remedios Jayme, were forced to jump
off said launch on account of fire which broke out on said vessel, resulting in the death of drowning, of the
insured and beneficiary in the waters of Jolo. 1äwphï1.ñët
On April 13, 1957, Simeon del Rosario, father of the insured, and as the sole heir, filed a claim for payment with
defendant company, and on September 13, 1957, defendant company paid to him (plaintiff) the sum of
P1,000.00, pursuant to Section 1 of Part I of the policy. The receipt signed by plaintiff reads —
RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO., INC., the sum of PESOS —
ONE THOUSAND (P1,000.00) Philippine Currency, being settlement in full for all claims and
demands against said Company as a result of an accident which occurred on February 26, 1957,
insured under out ACCIDENT Policy No. 7136, causing the death of the Assured.
In view of the foregoing, this policy is hereby surrendered and CANCELLED.
LOSS COMPUTATION
Amount of Insurance P1,000.00

__________
vvvvv
On the same date (September 13, 1957), Atty. Vicente J. Francisco, wrote defendant company acknowledging
receipt by his client (plaintiff herein), of the P1,000.00, but informing said company that said amount was not the
correct one. Atty. Francisco claimed —
Page 29 of 43
The amount payable under the policy, I believe should be P1,500.00 under the provision of Section 2,
part 1 of the policy, based on the rule of pari materia as the death of the insured occurred under the
circumstances similar to that provided under the aforecited section.
Defendant company, upon receipt of the letter, referred the matter to the Insurance Commissioner, who
rendered an opinion that the liability of the company was only P1,000.00, pursuant to Section 1, Part I of the
Provisions of the policy (Exh. F, or 3). Because of the above opinion, defendant insurance company refused to
pay more than P1,000.00. In the meantime, Atty. Vicente Francisco, in a subsequent letter to the insurance
company, asked for P3,000.00 which the Company refused, to pay. Hence, a complaint for the recovery of the
balance of P2,000.00 more was instituted with the Court of First Instance of Rizal (Pasay City, Branch VII),
praying for it further sum of P10,000.00 as attorney's fees, expenses of litigation and costs.
Defendant Insurance Company presented a Motion to Dismiss, alleging that the demand or claim is set forth in
the complaint had already been released, plaintiff having received the full amount due as appearing in policy
and as per opinion of the Insurance Commissioner. An opposition to the motion to dismiss, was presented by
plaintiff, and other pleadings were subsequently file by the parties. On December 28, 1957, the trial court
deferred action on the motion to dismiss until termination of the trial of the case, it appearing that the ground
thereof was not indubitable. In the Answer to the complaint, defendant company practically admitted all the
allegations therein, denying only those which stated that under the policy its liability was P3,000.00.
On September 1, 1958, the trial court promulgated an Amended Decision, the pertinent portions of which read
—
xxx xxx xxx
Since the contemporaneous and subsequent acts of the parties show that it was not their intention that
the payment of P1,000.00 to the plaintiff and the signing of the loss receipt exhibit "1" would be
considered as releasing the defendant completely from its liability on the policy in question, said
intention of the parties should prevail over the contents of the loss receipt "1" (Articles 1370 and 1371,
New Civil Code).
". . . . Under the terms of this policy, defendant company agreed to pay P1,000.00 to P3,000.00 as
indemnity for the death of the insured. The insured died of drowning. Death by drowning is covered by
the policy the pertinent provisions of which reads as follows:
xxx xxx xxx
"Part I of the policy fixes specific amounts as indemnities in case of death resulting from "bodily
injury which is effected solely thru violence, external, visible and accidental means" but, Part I of
the Policy is not applicable in case of death by drowning because death by drowning is not one
resulting from "bodily injury which is affected solely thru violent, external, visible and accidental
means" as "Bodily Injury" means a cut, a bruise, or a wound and drowning is death due to
suffocation and not to any cut, bruise or wound."
xxx xxx xxx
Besides, on the face of the policy Exhibit "A" itself, death by drowning is a ground for recovery apart
from the bodily injury because death by bodily injury is covered by Part I of the policy while death by
drowning is covered by Part VI thereof. But while the policy mentions specific amounts that may be
recovered for death for bodily injury, yet, there is not specific amount mentioned in the policy for death
thru drowning although the latter is, under Part VI of the policy, a ground for recovery thereunder. Since
the defendant has bound itself to pay P1000.00 to P3,000.00 as indemnity for the death of the insured
Page 30 of 43
but the policy does not positively state any definite amount that may be recovered in case of death by
drowning, there is an ambiguity in this respect in the policy, which ambiguity must be interpreted in favor
of the insured and strictly against the insurer so as to allow greater indemnity.
xxx xxx xxx
. . . plaintiff is therefore entitled to recover P3,000.00. The defendant had already paid the amount of
P1,000.00 to the plaintiff so that there still remains a balance of P2,000.00 of the amount to which
plaintiff is entitled to recover under the policy Exhibit "A".
The plaintiff asks for an award of P10,000.00 as attorney's fees and expenses of litigation. However,
since it is evident that the defendant had not acted in bad faith in refusing to pay plaintiff's claim, the
Court cannot award plaintiff's claim for attorney's fees and expenses of litigation.
IN VIEW OF THE FOREGOING, the Court hereby reconsiders and sets aside its decision dated July 21,
1958 and hereby renders judgment, ordering the defendant to pay plaintiff the sum of Two Thousand
(P2,000.00) Pesos and to pay the costs.
The above judgment was appealed to the Court of Appeals on three (3) counts. Said Court, in a Resolution
dated September 29, 1959, elevated the case to this Court, stating that the genuine issue is purely legal in
nature.
All the parties agree that indemnity has to be paid. The conflict centers on how much should the indemnity be.
We believe that under the proven facts and circumstances, the findings and conclusions of the trial court, are
well taken, for they are supported by the generally accepted principles or rulings on insurance, which enunciate
that where there is an ambiguity with respect to the terms and conditions of the policy, the same will be resolved
against the one responsible thereof. It should be recalled in this connection, that generally, the insured, has little,
if any, participation in the preparation of the policy, together with the drafting of its terms and Conditions. The
interpretation of obscure stipulations in a contract should not favor the party who cause the obscurity (Art. 1377,
N.C.C.), which, in the case at bar, is the insurance company.
. . . . And so it has been generally held that the "terms in an insurance policy, which are ambiguous,
equivocal or uncertain . . . are to be construed strictly against, the insurer, and liberally in favor of the
insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where a
forfeiture is involved," (29 Am. Jur. 181) and the reason for this rule is that the "insured usually has no
voice in the selection or arrangement of the words employed and that the language of the contract is
selected with great care and deliberation by expert and legal advisers employed by, and acting
exclusively in the interest of, the insurance company" (44 C.J.S. 1174). Calanoc v. Court of Appeals, et
al., G.R. No. L-8151, Dec. 16, 1955.
. . . . Where two interpretations, equally fair, of languages used in an insurance policy may be made, that
which allows the greater indemnity will prevail. (L'Engel v. Scotish Union & Nat. F. Ins. Co., 48 Fla. 82,
37 So. 462, 67 LRA 581 111 Am. St. Rep. 70, 5 Ann. Cas. 749).
At any event, the policy under consideration, covers death or disability by accidental means, and the appellant
insurance company agreed to pay P1,000.00 to P3,000.00. is indemnity for death of the insured.
In view of the conclusions reached, it would seem unnecessary to discuss the other issues raised in the appeal.
The judgment appealed from is hereby affirmed. Without costs.
Page 31 of 43

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 75605 January 22, 1993
RAFAEL (REX) VERENDIA, petitioner,

vs.
COURT OF APPEALS and FIDELITY & SURETY CO. OF THE PHILIPPINES, respondents.
G.R. No. 76399 January 22, 1993
FIDELITY & SURETY CO. OF THE PHILIPPINES, INC., petitioner,

vs.
RAFAEL VERENDIA and THE COURT OF APPEALS, respondents.
B.L. Padilla for petitioner.
Sabino Padilla, Jr. for Fidelity & Surety, Co.
MELO, J.:
The two consolidated cases involved herein stemmed from the issuance by Fidelity and Surety
Insurance Company of the Philippines (Fidelity for short) of its Fire Insurance Policy No. F-18876
effective between June 23, 1980 and June 23, 1981 covering Rafael (Rex) Verendia's residential building
located at Tulip Drive, Beverly Hills, Antipolo, Rizal in the amount of P385,000.00. Designated as
beneficiary was the Monte de Piedad & Savings Bank. Verendia also insured the same building with two
other companies, namely, The Country Bankers Insurance for P56,000.00 under Policy No. PDB-80-1913
expiring on May 12, 1981, and The Development Insurance for P400,000.00 under Policy No. F-48867
expiring on June 30, 198l.
While the three fire insurance policies were in force, the insured property was completely destroyed by
fire on the early morning of December 28, 1980. Fidelity was accordingly informed of the loss and
despite demands, refused payment under its policy, thus prompting Verendia to file a complaint with the
then Court of First Instance of Quezon City, praying for payment of P385,000.00, legal interest thereon,
plus attorney's fees and litigation expenses. The complaint was later amended to include Monte de
Piedad as an "unwilling defendant" (P. 16, Record).
Answering the complaint, Fidelity, among other things, averred that the policy was avoided by reason of
over-insurance; that Verendia maliciously represented that the building at the time of the fire was leased
under a contract executed on June 25, 1980 to a certain Roberto Garcia, when actually it was a Marcelo
Garcia who was the lessee.
On May 24, 1983, the trial court rendered a decision, per Judge Rodolfo A. Ortiz, ruling in favor of
Fidelity. In sustaining the defenses set up by Fidelity, the trial court ruled that Paragraph 3 of the policy
Page 32 of 43
was also violated by Verendia in that the insured failed to inform Fidelity of his other insurance
coverages with Country Bankers Insurance and Development Insurance.
Verendia appealed to the then Intermediate Appellate Court and in a decision promulgated on March 31,
1986, (CA-G.R. No. CV No. 02895, Coquia, Zosa, Bartolome, and Ejercito (P), JJ.), the appellate court
reversed for the following reasons: (a) there was no misrepresentation concerning the lease for the
contract was signed by Marcelo Garcia in the name of Roberto Garcia; and (b) Paragraph 3 of the policy
contract requiring Verendia to give notice to Fidelity of other contracts of insurance was waived by
Fidelity as shown by its conduct in attempting to settle the claim of Verendia (pp. 32-33, Rollo of G.R.
No. 76399).
Fidelity received a copy of the appellate court's decision on April 4, 1986, but instead of directly filing a
motion for reconsideration within 15 days therefrom, Fidelity filed on April 21, 1986, a motion for
extension of 3 days within which to file a motion for reconsideration. The motion for extension was not
filed on April 19, 1986 which was the 15th day after receipt of the decision because said 15th day was a
Saturday and of course, the following day was a Sunday (p. 14., Rollo of G.R. No. 75605). The motion for
extension was granted by the appellate court on April 30, 1986 (p. 15. ibid.), but Fidelity had in the
meantime filed its motion for reconsideration on April 24, 1986 (p. 16, ibid.).
Verendia filed a motion to expunge from the record Fidelity's motion for reconsideration on the ground
that the motion for extension was filed out of time because the 15th day from receipt of the decision
which fell on a Saturday was ignored by Fidelity, for indeed, so Verendia contended, the Intermediate
Appellate Court has personnel receiving pleadings even on Saturdays.
The motion to expunge was denied on June 17, 1986 (p. 27, ibid.) and after a motion for reconsideration
was similarly brushed aside on July 22, 1986 (p. 30, ibid .), the petition herein docketed as G.R. No.
75605 was initiated. Subsequently, or more specifically on October 21, 1986, the appellate court denied
Fidelity's motion for reconsideration and account thereof. Fidelity filed on March 31, 1986, the petition
for review on certiorari now docketed as G.R. No. 76399. The two petitions, inter-related as they are,
were consolidated
(p. 54, Rollo of G.R. No. 76399) and thereafter given due course.
Before we can even begin to look into the merits of the main case which is the petition for review
on certiorari, we must first determine whether the decision of the appellate court may still be reviewed,
or whether the same is beyond further judicial scrutiny. Stated otherwise, before anything else, inquiry
must be made into the issue of whether Fidelity could have legally asked for an extension of the 15-day
reglementary period for appealing or for moving for reconsideration.
As early as 1944, this Court through Justice Ozaeta already pronounced the doctrine that the pendency
of a motion for extension of time to perfect an appeal does not suspend the running of the period
sought to be extended (Garcia vs. Buenaventura 74 Phil. 611 [1944]). To the same effect were the rulings
in Gibbs vs. CFI of Manila (80 Phil. 160 [1948]) Bello vs. Fernando (4 SCRA 138 [1962]), and Joe vs.
King (20 SCRA 1120 [1967]).
The above cases notwithstanding and because the Rules of Court do not expressly prohibit the filing of
a motion for extension of time to file a motion for reconsideration in regard to a final order or judgment,
magistrates, including those in the Court of Appeals, held sharply divided opinions on whether the
period for appealing which also includes the period for moving to reconsider may be extended. The
matter was not definitely settled until this Court issued its Resolution in Habaluyas Enterprises, Inc. vs.
Japson (142 SCRA [1986]), declaring that beginning one month from the promulgation of the resolution
on May 30, 1986 —
Page 33 of 43
. . . the rule shall be strictly enforced that no motion for extension of time to file a motion
for new trial or reconsideration shall be filed . . . (at p. 212.)
In the instant case, the motion for extension was filed and granted before June 30, 1986, although, of
course, Verendia's motion to expunge the motion for reconsideration was not finally disposed until July
22, 1986, or after the dictum in Habaluyas had taken effect. Seemingly, therefore, the filing of the motion
for extension came before its formal proscription under Habaluyas, for which reason we now turn our
attention to G.R. No. 76399.
Reduced to bare essentials, the issues Fidelity raises therein are: (a) whether or not the contract of
lease submitted by Verendia to support his claim on the fire insurance policy constitutes a false
declaration which would forfeit his benefits under Section 13 of the policy and (b) whether or not, in
submitting the subrogation receipt in evidence, Fidelity had in effect agreed to settle Verendia's claim in
the amount stated in said receipt. 1
Verging on the factual, the issue of the veracity or falsity of the lease contract could have been better
resolved by the appellate court for, in a petition for review on certiorari under Rule 45, the jurisdiction of
this Court is limited to the review of errors of law. The appellate court's findings of fact are, therefore,
conclusive upon this Court except in the following cases: (1) when the conclusion is a finding grounded
entirely on speculation, surmises, or conjectures; (2) when the inference made is manifestly absurd,
mistaken, or impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4)
when the judgment is premised on a misapprehension of facts; (5) when the findings of fact are
conflicting; and (6) when the Court of Appeals in making its findings went beyond the issues of the case
and the same are contrary to the admissions of both appellant and appellee (Ronquillo v. Court of
Appeals, 195 SCRA 433 [1991]). In view of the conflicting findings of the trial court and the appellate
court on important issues in these consolidated cases and it appearing that the appellate court
judgment is based on a misapprehension of facts, this Court shall review the evidence on record.
The contract of lease upon which Verendia relies to support his claim for insurance benefits, was
entered into between him and one Robert Garcia, married to Helen Cawinian, on June 25, 1980 (Exh.
"1"), a couple of days after the effectivity of the insurance policy. When the rented residential building
was razed to the ground on December 28, 1980, it appears that Robert Garcia (or Roberto Garcia) was
still within the premises. However, according to the investigation report prepared by Pat. Eleuterio M.
Buenviaje of the Antipolo police, the building appeared to have "no occupant" and that Mr. Roberto
Garcia was "renting on the otherside (sic) portion of said compound"
(Exh. "E"). These pieces of evidence belie Verendia's uncorroborated testimony that Marcelo Garcia,
whom he considered as the real lessee, was occupying the building when it was burned (TSN, July 27,
1982, p.10).
Robert Garcia disappeared after the fire. It was only on October 9, 1981 that an adjuster was able to
locate him. Robert Garcia then executed an affidavit before the National Intelligence and Security
Authority (NISA) to the effect that he was not the lessee of Verendia's house and that his signature on
the contract of lease was a complete forgery. Thus, on the strength of these facts, the adjuster
submitted a report dated December 4, 1981 recommending the denial of Verendia's claim (Exh. "2").
Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the lease
contract. According to Verendia, it was signed by Marcelo Garcia, cousin of Robert, who had been
paying the rentals all the while. Verendia, however, failed to explain why Marcelo had to sign his
cousin's name when he in fact was paying for the rent and why he (Verendia) himself, the lessor,
allowed such a ruse. Fidelity's conclusions on these proven facts appear, therefore, to have sufficient
bases; Verendia concocted the lease contract to deflect responsibility for the fire towards an alleged
"lessee", inflated the value of the property by the alleged monthly rental of P6,500 when in fact, the
Provincial Assessor of Rizal had assessed the property's fair market value to be only P40,300.00,
Page 34 of 43
insured the same property with two other insurance companies for a total coverage of around P900,000,
and created a dead-end for the adjuster by the disappearance of Robert Garcia.
Basically a contract of indemnity, an insurance contract is the law between the parties (Pacific Banking
Corporation vs. Court of Appeals 168 SCRA 1 [1988]). Its terms and conditions constitute the measure of
the insurer's liability and compliance therewith is a condition precedent to the insured's right to
recovery from the insurer (Oriental Assurance Corporation vs. Court of Appeals, 200 SCRA 459 [1991],
citing Perla Compania de Seguros, Inc. vs. Court of Appeals, 185 SCRA 741 [1991]). As it is also a
contract of adhesion, an insurance contract should be liberally construed in favor of the insured and
strictly against the insurer company which usually prepares it (Western Guaranty Corporation vs. Court
of Appeals, 187 SCRA 652 [1980]).
Considering, however, the foregoing discussion pointing to the fact that Verendia used a false lease
contract to support his claim under Fire Insurance Policy No. F-18876, the terms of the policy should be
strictly construed against the insured. Verendia failed to live by the terms of the policy, specifically
Section 13 thereof which is expressed in terms that are clear and unambiguous, that all benefits under
the policy shall be forfeited "If the claim be in any respect fraudulent, or if any false declaration be made
or used in support thereof, or if any fraudulent means or devises are used by the Insured or anyone
acting in his behalf to obtain any benefit under the policy". Verendia, having presented a false
declaration to support his claim for benefits in the form of a fraudulent lease contract, he forfeited all
benefits therein by virtue of Section 13 of the policy in the absence of proof that Fidelity waived such
provision (Pacific Banking Corporation vs. Court of Appeals, supra). Worse yet, by presenting a false
lease contract, Verendia, reprehensibly disregarded the principle that insurance contracts are uberrimae
fidae and demand the most abundant good faith (Velasco vs. Apostol, 173 SCRA 228 [1989]).
There is also no reason to conclude that by submitting the subrogation receipt as evidence in court,
Fidelity bound itself to a "mutual agreement" to settle Verendia's claims in consideration of the amount
of P142,685.77. While the said receipt appears to have been a filled-up form of Fidelity, no representative
of Fidelity had signed it. It is even incomplete as the blank spaces for a witness and his address are not
filled up. More significantly, the same receipt states that Verendia had received the aforesaid amount.
However, that Verendia had not received the amount stated therein, is proven by the fact that Verendia
himself filed the complaint for the full amount of P385,000.00 stated in the policy. It might be that there
had been efforts to settle Verendia's claims, but surely, the subrogation receipt by itself does not prove
that a settlement had been arrived at and enforced. Thus, to interpret Fidelity's presentation of the
subrogation receipt in evidence as indicative of its accession to its "terms" is not only wanting in
rational basis but would be substituting the will of the Court for that of the parties.
WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The petition in G.R. No. 76399 is GRANTED
and the decision of the then Intermediate Appellate Court under review is REVERSED and SET ASIDE
and that of the trial court is hereby REINSTATED and UPHELD.
SO ORDERED.
Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.
Page 35 of 43

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 115278 May 23, 1995
FORTUNE INSURANCE AND SURETY CO., INC., petitioner,

vs.
COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.
DAVIDE, JR., J.:
The fundamental legal issue raised in this petition for review on certiorari is whether the petitioner is liable under
the Money, Security, and Payroll Robbery policy it issued to the private respondent or whether recovery
thereunder is precluded under the general exceptions clause thereof. Both the trial court and the Court of
Appeals held that there should be recovery. The petitioner contends otherwise.
This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, by private
respondent Producers Bank of the Philippines (hereinafter Producers) against petitioner Fortune Insurance and
Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of the sum of P725,000.00 under the policy
issued by Fortune. The sum was allegedly lost during a robbery of Producer's armored vehicle while it was in
transit to transfer the money from its Pasay City Branch to its head office in Makati. The case was docketed as
Civil Case No. 1817 and assigned to Branch 146 thereof.
After joinder of issues, the parties asked the trial court to render judgment based on the following stipulation of
facts:
1. The plaintiff was insured by the defendants and an insurance policy was
issued, the duplicate original of which is hereto attached as Exhibit "A";
2. An armored car of the plaintiff, while in the process of transferring cash in the
sum of P725,000.00 under the custody of its teller, Maribeth Alampay, from its
Pasay Branch to its Head Office at 8737 Paseo de Roxas, Makati, Metro Manila
on June 29, 1987, was robbed of the said cash. The robbery took place while the
armored car was traveling along Taft Avenue in Pasay City;
3. The said armored car was driven by Benjamin Magalong Y de Vera, escorted
by Security Guard Saturnino Atiga Y Rosete. Driver Magalong was assigned by
PRC Management Systems with the plaintiff by virtue of an Agreement executed
on August 7, 1983, a duplicate original copy of which is hereto attached as
Exhibit "B";
4. The Security Guard Atiga was assigned by Unicorn Security Services, Inc. with
the plaintiff by virtue of a contract of Security Service executed on October 25,
1982, a duplicate original copy of which is hereto attached as Exhibit "C";
Page 36 of 43
5. After an investigation conducted by the Pasay police authorities, the driver

Magalong and guard Atiga were charged, together with Edelmer Bantigue Y
Eulalio, Reynaldo Aquino and John Doe, with violation of P.D. 532 (Anti-Highway
Robbery Law) before the Fiscal of Pasay City. A copy of the complaint is hereto
attached as Exhibit "D";
6. The Fiscal of Pasay City then filed an information charging the aforesaid
persons with the said crime before Branch 112 of the Regional Trial Court of
Pasay City. A copy of the said information is hereto attached as Exhibit "E." The
case is still being tried as of this date;
7. Demands were made by the plaintiff upon the defendant to pay the amount of
the loss of P725,000.00, but the latter refused to pay as the loss is excluded from
the coverage of the insurance policy, attached hereto as Exhibit "A," specifically
under page 1 thereof, "General Exceptions" Section (b), which is marked as
Exhibit "A-1," and which reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of
xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent or criminal act of

the insured or any officer, employee, partner, director, trustee or
authorized representative of the Insured whether acting alone or
in conjunction with others. . . .
8. The plaintiff opposes the contention of the defendant and contends that Atiga
and Magalong are not its "officer, employee, . . . trustee or authorized
representative . . . at the time of the robbery. 1
On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive portion thereof reads
as follows:
WHEREFORE, premises considered, the Court finds for plaintiff and against defendant, and
(a) orders defendant to pay plaintiff the net amount of

P540,000.00 as liability under Policy No. 0207 (as mitigated by
the P40,000.00 special clause deduction and by the recovered
sum of P145,000.00), with interest thereon at the legal rate, until
fully paid;
(b) orders defendant to pay plaintiff the sum of P30,000.00 as and

for attorney's fees; and
(c) orders defendant to pay costs of suit.
All other claims and counterclaims are accordingly dismissed forthwith.
SO ORDERED. 2
Page 37 of 43
The trial court ruled that Magalong and Atiga were not employees or representatives of Producers. It Said:
The Court is satisfied that plaintiff may not be said to have selected and engaged Magalong and
Atiga, their services as armored car driver and as security guard having been merely offered by
PRC Management and by Unicorn Security and which latter firms assigned them to plaintiff. The
wages and salaries of both Magalong and Atiga are presumably paid by their respective firms,
which alone wields the power to dismiss them. Magalong and Atiga are assigned to plaintiff in
fulfillment of agreements to provide driving services and property protection as such — in a
context which does not impress the Court as translating into plaintiff's power to control the
conduct of any assigned driver or security guard, beyond perhaps entitling plaintiff to request are
replacement for such driver guard. The finding is accordingly compelled that neither Magalong
nor Atiga were plaintiff's "employees" in avoidance of defendant's liability under the policy,
particularly the general exceptions therein embodied.
Neither is the Court prepared to accept the proposition that driver Magalong and guard Atiga
were the "authorized representatives" of plaintiff. They were merely an assigned armored car
driver and security guard, respectively, for the June 29, 1987 money transfer from plaintiff's
Pasay Branch to its Makati Head Office. Quite plainly — it was teller Maribeth Alampay who had
"custody" of the P725,000.00 cash being transferred along a specified money route, and hence
plaintiff's then designated "messenger" adverted to in the policy. 3
Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G.R. CV No. 32946. In
its decision 4 promulgated on 3 May 1994, it affirmed in toto the appealed decision.
The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga were neither
employees nor authorized representatives of Producers and ratiocinated as follows:
A policy or contract of insurance is to be construed liberally in favor of the insured and strictly
against the insurance company (New Life Enterprises vs. Court of Appeals, 207 SCRA 669; Sun
Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA 554). Contracts of insurance, like other
contracts, are to be construed according to the sense and meaning of the terms which the
parties themselves have used. If such terms are clear and unambiguous, they must be taken and
understood in their plain, ordinary and popular sense (New Life Enterprises Case, supra, p. 676;
Sun Insurance Office, Ltd. vs. Court of Appeals, 195 SCRA 193).
The language used by defendant-appellant in the above quoted stipulation is plain, ordinary and
simple. No other interpretation is necessary. The word "employee" must be taken to mean in the
ordinary sense.
The Labor Code is a special law specifically dealing with/and specifically designed to protect
labor and therefore its definition as to employer-employee relationships insofar as the
application/enforcement of said Code is concerned must necessarily be inapplicable to an
insurance contract which defendant-appellant itself had formulated. Had it intended to apply the
Labor Code in defining what the word "employee" refers to, it must/should have so stated
expressly in the insurance policy.
Said driver and security guard cannot be considered as employees of plaintiff-appellee bank
because it has no power to hire or to dismiss said driver and security guard under the contracts
(Exhs. 8 and C) except only to ask for their replacements from the contractors. 5
On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial court and the Court of
Appeals erred in holding it liable under the insurance policy because the loss falls within the general exceptions
Page 38 of 43
clause considering that driver Magalong and security guard Atiga were Producers' authorized representatives or
employees in the transfer of the money and payroll from its branch office in Pasay City to its head office in
Makati.
According to Fortune, when Producers commissioned a guard and a driver to transfer its funds from one branch
to another, they effectively and necessarily became its authorized representatives in the care and custody of the
money. Assuming that they could not be considered authorized representatives, they were, nevertheless,
employees of Producers. It asserts that the existence of an employer-employee relationship "is determined by
law and being such, it cannot be the subject of agreement." Thus, if there was in reality an employer-employee
relationship between Producers, on the one hand, and Magalong and Atiga, on the other, the provisions in the
contracts of Producers with PRC Management System for Magalong and with Unicorn Security Services for
Atiga which state that Producers is not their employer and that it is absolved from any liability as an employer,
would not obliterate the relationship.
Fortune points out that an employer-employee relationship depends upon four standards: (1) the manner of
selection and engagement of the putative employee; (2) the mode of payment of wages; (3) the presence or
absence of a power to dismiss; and (4) the presence and absence of a power to control the putative employee's
conduct. Of the four, the right-of-control test has been held to be the decisive factor. 6 It asserts that the power of
control over Magalong and Atiga was vested in and exercised by Producers. Fortune further insists that PRC
Management System and Unicorn Security Services are but "labor-only" contractors under Article 106 of the Labor
Code which provides:
Art. 106. Contractor or subcontractor. — There is "labor-only" contracting where the person
supplying workers to an employer does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises, among others, and the workers recruited and
placed by such persons are performing activities which are directly related to the principal
business of such employer. In such cases, the person or intermediary shall be considered
merely as an agent of the employer who shall be responsible to the workers in the same manner
and extent as if the latter were directly employed by him.
Fortune thus contends that Magalong and Atiga were employees of Producers, following the ruling
in International Timber Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only" contractor is equivalent to a
finding that there is an employer-employee relationship between the owner of the project and the employees of the
"labor-only" contractor.
On the other hand, Producers contends that Magalong and Atiga were not its employees since it had nothing to
do with their selection and engagement, the payment of their wages, their dismissal, and the control of their
conduct. Producers argued that the rule in International Timber Corp. is not applicable to all cases but only when
it becomes necessary to prevent any violation or circumvention of the Labor Code, a social legislation whose
provisions may set aside contracts entered into by parties in order to give protection to the working man.
Producers further asseverates that what should be applied is the rule in American President Lines vs. Clave, 8 to
wit:
In determining the existence of employer-employee relationship, the following elements are

generally considered, namely: (1) the selection and engagement of the employee; (2) the
payment of wages; (3) the power of dismissal; and (4) the power to control the employee's
conduct.
Since under Producers' contract with PRC Management Systems it is the latter which assigned Magalong as the
driver of Producers' armored car and was responsible for his faithful discharge of his duties and responsibilities,
and since Producers paid the monthly compensation of P1,400.00 per driver to PRC Management Systems and
not to Magalong, it is clear that Magalong was not Producers' employee. As to Atiga, Producers relies on the
Page 39 of 43
provision of its contract with Unicorn Security Services which provides that the guards of the latter "are in no
sense employees of the CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the parties is a theft or robbery insurance policy
which is a form of casualty insurance. Section 174 of the Insurance Code provides:
Sec. 174. Casualty insurance is insurance covering loss or liability arising from accident or
mishap, excluding certain types of loss which by law or custom are considered as falling
exclusively within the scope of insurance such as fire or marine. It includes, but is not limited to,
employer's liability insurance, public liability insurance, motor vehicle liability insurance, plate
glass insurance, burglary and theft insurance, personal accident and health insurance as written
by non-life insurance companies, and other substantially similar kinds of insurance. (emphases
supplied)
Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no other
provisions applicable to casualty insurance or to robbery insurance in particular. These contracts are, therefore,
governed by the general provisions applicable to all types of insurance. Outside of these, the rights and
obligations of the parties must be determined by the terms of their contract, taking into consideration its purpose
and always in accordance with the general principles of insurance law. 9
It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud the insurer
— the moral hazard — is so great that insurers have found it necessary to fill up their policies with countless
restrictions, many designed to reduce this hazard. Seldom does the insurer assume the risk of all losses due to
the hazards insured against." 10 Persons frequently excluded under such provisions are those in the insured's
service and employment. 11 The purpose of the exception is to guard against liability should the theft be committed by
one having unrestricted access to the property. 12 In such cases, the terms specifying the excluded classes are to be
given their meaning as understood in common speech. 13 The terms "service" and "employment" are generally
associated with the idea of selection, control, and compensation. 14
A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against the
insurer, 15 or it should be construed liberally in favor of the insured and strictly against the insurer. 16 Limitations of
liability should be regarded with extreme jealousy and must be construed
in such a way, as to preclude the insurer from non-compliance with its obligation. 17 It goes without saying then that if
the terms of the contract are clear and unambiguous, there is no room for construction and such terms cannot be
enlarged or diminished by judicial construction. 18
An insurance contract is a contract of indemnity upon the terms and conditions specified therein. 19 It is settled
that the terms of the policy constitute the measure of the insurer's liability. 20 In the absence of statutory prohibition to
the contrary, insurance companies have the same rights as individuals to limit their liability and to impose whatever
conditions they deem best upon their obligations not inconsistent with public policy.
With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify as employees or
authorized representatives of Producers under paragraph (b) of the general exceptions clause of the policy
which, for easy reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
xxx xxx xxx
Page 40 of 43
(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or
any officer, employee, partner, director, trustee or authorized representative of
the Insured whether acting alone or in conjunction with others. . . . (emphases
supplied)
There is marked disagreement between the parties on the correct meaning of the terms "employee" and
"authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from protection
and coverage losses arising from dishonest, fraudulent, or criminal acts of persons granted or having
unrestricted access to Producers' money or payroll. When it used then the term "employee," it must have had in
mind any person who qualifies as such as generally and universally understood, or jurisprudentially established
in the light of the four standards in the determination of the employer-employee relationship, 21 or as statutorily
declared even in a limited sense as in the case of Article 106 of the Labor Code which considers the employees under
a "labor-only" contract as employees of the party employing them and not of the party who supplied them to the
employer. 22
Fortune claims that Producers' contracts with PRC Management Systems and Unicorn Security Services are
"labor-only" contracts.
Producers, however, insists that by the express terms thereof, it is not the employer of Magalong.
Notwithstanding such express assumption of PRC Management Systems and Unicorn Security Services
that the drivers and the security guards each shall supply to Producers are not the latter's employees, it
may, in fact, be that it is because the contracts are, indeed, "labor-only" contracts. Whether they are is,
in the light of the criteria provided for in Article 106 of the Labor Code, a question of fact. Since the
parties opted to submit the case for judgment on the basis of their stipulation of facts which are strictly
limited to the insurance policy, the contracts with PRC Management Systems and Unicorn Security
Services, the complaint for violation of P.D. No. 532, and the information therefor filed by the City Fiscal
of Pasay City, there is a paucity of evidence as to whether the contracts between Producers and PRC
Management Systems and Unicorn Security Services are "labor-only" contracts.
But even granting for the sake of argument that these contracts were not "labor-only" contracts, and PRC
Management Systems and Unicorn Security Services were truly independent contractors, we are satisfied that
Magalong and Atiga were, in respect of the transfer of Producer's money from its Pasay City branch to its head
office in Makati, its "authorized representatives" who served as such with its teller Maribeth Alampay.
Howsoever viewed, Producers entrusted the three with the specific duty to safely transfer the money to its head
office, with Alampay to be responsible for its custody in transit; Magalong to drive the armored vehicle which
would carry the money; and Atiga to provide the needed security for the money, the vehicle, and his two other
companions. In short, for these particular tasks, the three acted as agents of Producers. A "representative" is
defined as one who represents or stands in the place of another; one who represents others or another in a
special capacity, as an agent, and is interchangeable with "agent." 23
In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the insurance
policy.
WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. CV
No. 32946 dated 3 May 1994 as well as that of Branch 146 of the Regional Trial Court of Makati in Civil Case
No. 1817 are REVERSED and SET ASIDE. The complaint in Civil Case No. 1817 is DISMISSED.
No pronouncement as to costs.
SO ORDERED.
Page 41 of 43

SUPREME COURT
Manila
EN BANC
G.R. No. L-21380 May 20, 1966
MISAMIS LUMBER CORPORATION, plaintiff and appellee,

vs.
CAPITAL INSURANCE and SURETY CO., INC., defendant and appellant.
Achacoso, Nera and Ocampo for defendant and appellant.

F. Capistrano, Jr. for plaintiff and appellee.
REYES, J.B.L., J.:
Plaintiff-appellee Misamis Lumber Corporation, under its former name, Lanao Timber Mills, Inc., insured its Ford
Falcon motor car for the amount of P14,000 with the defendant-appellant, Capital Insurance & Surety Company,
Inc. The pertinent provisions of the policy provided, as follows:
1. The Company will subject to the Limits of Liability indemnify the Insured against loss or damage to the
Motor Vehicle and its accessories and spare parts whilst thereon.
2. (a) by accidental collision or overturning or collision or overturning consequent when mechanical

breakdown or consequent upon wear and tear.
xxx xxx xxx
3. At its option, the Company may pay in cash the amount of the loss or damage or may repair, reinstate
or replace the Motor Vehicle or any part thereof or its accessories or spare parts. The liability of the
Company shall not exceed the value of the parts lost or damaged and the reasonable cost of fitting such
parts or the value of the Motor Vehicle at the time of the loss or damage whichever is the loss. The
Insured's estimate of value stated in the schedule shall be the maximum amount payable by the
Company in respect of any claim for loss or damage. 1äwphï1.ñët
xxx xxx xxx
4. The Insured may authorize the repair of the Motor Vehicle necessitated by damage for which the
Company may be liable under this policy provided that:
(a) the estimated cost of such repair does not exceed the authorized Repair Limit.
(b) a detailed estimate of the cost is forwarded to the Company without delay.
and providing also that the authorized repair limit is P150.00.
At around eleven o'clock in the evening of 25 November 1961, and while the above-mentioned insurance policy
was in force, the insured car, while traveling along in Aurora Boulevard in front of the Pepsi-Cola plant in
Quezon City, passed over a water hole which the driver did not see because an oncoming car did not dim its
light. The crankcase and flywheel housing of the car broke when it hit a hollow block lying alongside the water
Page 42 of 43
hole. At the instance of the plaintiff-appellee, the car was towed and repaired by Morosi Motors at its shop at
1906 Taft Avenue Extension at a total cost of P302.27.
On 29 November 1961, when the repairs on the car had already been made, the plaintiff-appellee made a report
of the accident to the defendant-appellant Capital Insurance & Surety Company.
Since the defendant-appellant refused to pay for the total cost of to wage and repairs, suit was filed in the
municipal court originally.
The case before Us is now a direct appeal on a point of law from the judgment of the Court of First Instance of
Manila finding for the plaintiff and against the defendant-insurer in its Civil Case No. 51757. Per our resolution
on 13 February 1964, it was resolved to proceed with the case without the appellee's brief, which was filed late.
The defendant-appellant admits liability in the amount of P150, but not for any excess thereof.
The lower court did not exonerate the said appellant for the excess because, according to it, the company's
absolution would render the insurance contract one-sided and that the said insurer had not shown that the cost
of repairs in the sum of P302.27 is unreasonable, excessive or padded, nor had it shown that it could have
undertaken the repairs itself at less expense.
The above reasoning is beside the point, because the insurance policy stipulated in paragraph 4 that if the
insured authorizes the repair the liability of the insurer, per its sub-paragraph (a), is limited to P150.00. The
literal meaning of this stipulation must control, it being the actual contract, expressly and plainly provided for in
the policy (Art. 1370, Civil Code; Young vs. Midland Textile Ins. Co., 30 Phil. 617; Ty vs. First Nat. Surety &
Assur. Co., Inc., L-16138-45, 29 April 1961).
The lower court's recourse to legal hermeneutics is not called for because paragraph 4 of the policy is clear and
specific and leaves no room for interpretation. The interpretation given is even unjustified because it opposes
what was specifically stipulated. Thus, it will be observed that the policy drew out not only the limits of the
insurer's liability but also the mechanics that the insured had to follow to be entitled to full indemnity of repairs.
The option to undertake the repairs is accorded to the insurance company per paragraph 2. The said company
was deprived of the option because the insured took it upon itself to have the repairs made, and only notified the
insurer when the repairs were done. As a consequence, paragraph 4, which limits the company's liability to
P150.00, applies.
The insurance contract may be rather onerous ("one-sided", as the lower court put it), but that in itself does not
justify the abrogation of its express terms, terms which the insured accepted or adhered to and which is the law
between the contracting parties.
Finally, to require the insurer to prove that the cost of the repairs ordered by the insured is unreasonable, as the
appealed decision does, when the insurer was not given an opportunity to inspect and assess the damage
before the repairs were made, strikes Us as contrary to elementary justice and equity.
For the foregoing reasons, the appealed decision is hereby modified by ordering the defendant-appellant Capital
Insurance & Surety Company, Inc. to pay not more than P150.00 to the plaintiff-appellee Misamis Lumber
Corporation. Each party shall bear its own costs and attorney's fees.
Bengzon, C.J., Bautista Angelo, Concepcion, Barrera, Dizon, Regala, Makalintal, Bengzon, J.P., and Sanchez,
JJ., concur.
Zaldivar, J., took no part.
Page 43 of 43

Law On Insurance Cases Construction of Insurance Contracts

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Law On Insurance Cases Construction of Insurance Contracts

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Law on Insurance: Cases on Construction of Insurance Contracts

Republic of the Philippines

G.R. No. L-21574 June 30, 1966

SIMON DE LA CRUZ, plaintiff and appellee,

Achacoso, Nera and Ocampo for defendant and appellant.

Republic of the Philippines

G.R. No. 92383 July 17, 1992

SUN INSURANCE OFFICE, LTD., petitioner,

The term "accident" has been defined as follows:

The company shall not be liable in respect of

xxx xxx xxx

The contrary view is expressed by the petitioner thus:

Republic of the Philippines

G.R. No. L-21821-22 and L-21824-27 May 31, 1966

DIOSDADO C. TY, plaintiff-appellant,

Porfirio V. Villaroman for plaintiff-appellant.

The facts of these cases are not controverted:

(1) Fracture, simple, oraximal phalanx, index finger, left;

(3) Fracture, compound, communite phalanx, 4th finger, left;

(4) Fracture, simple, middle phalanx, middle finger, left;

(5) Lacerated wound, sutured, volar aspect, small finger, left;

"INDEMNITY FOR TOTAL OR PARTIAL DISABILITY

xxx xxx xxx

xxx xxx xxx

Either Hand P650.00

xxx xxx xxx

We find no reason to depart from the foregoing ruling on the matter.

Republic of the Philippines

G.R. No. L-8151 December 16, 1955

VIRGINIA CALANOC, petitioner,

Lucio Javillonar for petitioner.

BAUTISTA ANGELO, J.:

Republic of the Philippines

G.R. No. L-25579 March 29, 1972

Tanopo, Millora, Serafica, and Sañez for plaintiff-appellees.

Araneta, Mendoza and Papa for defendant-appellant.

Zaldivar, Castro, Fernando and Villamor, JJ., concur.

Makasiar, J., reserves his vote.

BARREDO, J., concurring —

TEEHANKEE, J., dissenting:

Defendant's accidental death benefit clause expressly provides:

(1) Self-destruction or self-inflicted injuries, whether the Insured be sane or insane;

(2) Bodily or mental infirmity or disease of any kind;

(7) Atomic energy explosion of any nature whatsoever.

Republic of the Philippines

G.R. No. 100970 September 2, 1992

FINMAN GENERAL ASSURANCE CORPORATION, petitioner,

Aquino and Associates for petitioner.

Public Attorney's Office for private respondent.

On July 11, 1991, the appellate court affirmed said decision.

As correctly pointed out by the respondent appellate court in its decision:

Article 1377 of the Civil Code of the Philippines provides that:

Republic of the Philippines

G.R. No. L-4611 December 17, 1955

QUA CHEE GAN, plaintiff-appellee,

Delgado, Flores & Macapagal for appellant.

REYES, J. B. L., J.:

(a) Under the first cause of action, the sum of P146,394.48;

(b) Under the second cause of action, the sum of P150,000;

(c) Under the third cause of action, the sum of P5,000;

(e) Under the fifth cause of action, the sum of P40,000;

Policy No. Property Insured Amount

The reason for the rule is not difficult to find.